With 2012 well under way, Hilton-Baird gives its top cash flow tips to businesses to ensure they're best placed to ride any future challenges the economy is likely to present.

1. Consider your funding options

The expression 'cash is king' has never been more true than in the current economic climate - it's vitally important for businesses to have a healthy cash flow. However the latest figures from the Bank of England have revealed that lending to businesses fell by £2.7bn in August, a 1.8% decline year-on-year. Therefore with traditional forms of funding difficult to access, businesses need to look at other forms of finance. Asset based finance facilities can release up to 90% of an invoice's value within 24 hours to help bridge the gap between paying suppliers and receiving payment from customers and improve cash flow.

2. Credit control and one-off debt recovery

Late payment of debts resulting in delayed receipts can be detrimental to a business' cash flow and so staying on top of customer payments is vital. Setting up automatic reminders and enforcing credit terms vigorously can help towards managing late payments. Additionally regular credit checking of all customers is advisable in order to manage your risk of customer defaults. Given that there is often little time to focus on chasing debts, outsourcing your credit control function or simply just the odd overdue debt to an expert debt collection agency can help you focus your resources on what matters most: driving your business forward.

3. Maintain your records

Inaccurate accounting information can not only make it difficult to obtain funding but can actually be detrimental to your ability to collect a debt, in an event where you may need to call upon necessary proofs of deliveries. Further, poorly maintained accounting records can cause delay and extra costs for financial and legal advisers reviewing business, therefore it is important for a business to keep their accounting information accurate and up-to-date.

4. Pay outstanding bills judiciously

Staying on top of your own payments as a business is not only crucial to a healthy cash flow but a bad credit history can stifle a business. By being vigilant in regards to which of your suppliers are willing to wait for payment and which will charge you for interest if you are late, you can schedule payments to maximise the cash in your account. However, whilst utilities and subcontractors may be persuaded to wait for payment HM Revenue & Customs won't be as flexible!

5. Diversify and benchmark

Ideally all businesses should have a good mix of clients across a range of sectors and it is critical not to rely too heavily on one or two clients as overreliance is rarely a good thing. Ask yourself where you would be if your top customer revised their budgets and decide to go elsewhere or for whatever reason failed to pay up on the balance currently outstanding with you?

As the market can alter so rapidly, it is good practice to ensure the funding you currently have in place is flexible and meeting any changing needs. Recent statistics have shown that UK businesses rely heavily on inflexible forms of funding such as overdrafts, credit cards, business loans or family and friends. These types of funding solutions are unlikely to offer the support needed in a tough economic climate as they each have limitations, whereas asset based finance provides the flexibility to support your business.

Find out how to improve cash flow through invoice finance or get an invoice finance quote in three easy steps.