• Simon Kearsley, CEO at bluQube


• 12.06.2023 01:00 pm
#cashflow #management

As businesses continue to endure tough trading conditions in a challenging UK economy, finding new pathways to growth is essential. If businesses are to thrive and not just survive, they must address fundamental factors that drive growth – including the effective management of cash flow.

The problem: poor cash flow management

Positive control of cash flow – the cash coming into and out of a business that allows it to reinvest, settle with suppliers, deliver payroll, pay expenses and return finance to investors etc – is unfortunately poorly managed by many firms, with the Bank of England estimating that companies face an aggregate cash flow deficit of about £140bn because they have more money going out than coming in. Negative cash flow seriously damages a business, leaving it unable to pay debts, running the risk of an overdraft and paying interest on loans.

Taking a strategic approach

A key tactic for generating efficient cash flow and therefore stimulating growth is for a business to strategically implement cloud-based accounting software. Such software packages allow a business to reap rewards by implementing flexible reporting to enhance cash flow visibility, automated debt recovery and automated payments. At a time when business finances are feeling the pinch, can businesses really afford to not improve their processes?

Two of the key features of software packages are automated invoicing and debt management. Systems can integrate with a company’s bank account and generate a sales invoice that will be automatically emailed to the customer. Automated debt management notifications are also systemised to remind the customer by email that the payment is due at preset intervals. This greatly simplifies and automates credit control by sending automated prompts at pre-set periods.  This gets money swiftly and efficiently into the businesses coffers as online payment is the quickest and most convenient way to be paid.

Additionally, software systems can set up direct debits for customers and generate BACS files that banks use to automate the payment process. The business then receives a ‘cash receipt’ when the payment arrives. The bank reconciliation processes can also be automated as the software will read the bank statement file so the external bank cross-matches with the system.

When it comes to purchasing ledger capabilities, businesses can receive purchase invoices from suppliers by email. The software then uses optical character recognition (OCR) to read the invoice and create a purchase invoice within the system. Payment runs can then be established accordingly, regularly updated, and hold invoices to produce an acceptable total value for the run.

Finally, BACS files are produced and sent back to the bank to action payments and generate remittances to send to suppliers by email for notification of payment. Not too long ago all these processes were manual, leading to lots of bad debt, late payment penalties and interest charges.

Final thoughts

Ultimately, installing a cloud accounting software package makes cash flow management simpler, faster and more efficient, providing owners with a cost-effective tool allowing them invaluable time to grow stronger and more profitable, despite these testing economic times.