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Cash Flow tip – Day-to-day Accounting activities – daily weekly monthly
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Published on Thursday, 18 April 2024 08:19
There are essential day-to-day accounting activities or “things to do” to ensure your business cash flow stays healthy and your accounts are in order, daily, weekly and monthly, even if just to check the items that need action. Mostly it comes down to the discipline to keep on top of key practices and good communication with your customers, suppliers and banks.
Debtors
- Before extending credit to a customer, it's crucial to have a comprehensive understanding of their background. Gathering all necessary information about the customer is essential, and for larger transactions, conducting a credit check is advisable.
- Clearly establish and mutually agree upon the credit terms at the outset of the business relationship. It's important to communicate the payment due date and recipient clearly to the customer, and ensure that invoices prominently display your terms and banking details. While it's beneficial to offer terms that suit both parties, it's advisable to keep the credit period under 14 days.
- Regularly send reminder statements to follow up on outstanding payments and ensure timely settlement of invoices.
Creditors
- Cultivating strong relationships with your suppliers is crucial. Strive to make timely payments whenever feasible, as this can lead to potential flexibility in credit terms during periods of financial strain.
- In the event of encountering financial difficulties, it's important not to hesitate in requesting extended credit terms or the option to spread out payments over a period of time.
- Assess your stock to identify the products that are selling well and those that are not. It's advisable to eliminate slow-moving items and sell them promptly, as holding onto stock ties up your available funds.
Cashflow Forecast
It's important to consider various scenarios, such as the potential impact of non-payment by your largest customer or an increase in average payment terms. Regularly updating and tracking your financial progress can help prevent unexpected surprises. As an exercise, you can download last year's Profit and Loss statement into Excel, organize it as a monthly multi-period, and adjust for anticipated sales and expense changes for the upcoming year. Incorporate formulas to calculate your cost of sales, gross profit, total expenses and operating profit each month. Additionally, include a line to input the opening bank balance and exclude any non-cash expenses, such as depreciation, to accurately record actual cash flow. This comprehensive approach will provide a clear understanding of expected cash inflows and outflows based on customer history, allowing you to identify potential surpluses or shortfalls in cash.
It's advisable to reconcile your bank account on a daily basis to monitor incoming and outgoing payments. Utilizing reliable accounting software with daily bank feeds that are automatically categorized can provide real-time awareness of your cash balance.
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