The Importance of Cash Flow

20th Dec 2019

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Cash flow for your business is like fuel for your car, you need to manage the cash flow within your business and not let it manage itself. If you left your car to fuel itself, it would eventually come to a grinding halt. It is important to keep cash coming in, and ensuring it flows smoothly through the system to keep your business alive and functioning.

You should aim to keep a positive cash flow at all times. This means the money flowing into your business is greater than the amount flowing out. Without this you can’t pay your bills, invest in growth, or cope with emergencies. Below are five strategies to help keep your cash flow positive from the get-go.

  1. Encourage Prompt Payment

You should always indicate clearly in your contract and on your bills when payment is due and what consequences of late payment will be. This could be things like adding a late payment charge of 2%.

To help encourage your customers to pay quickly, offer them a prompt payment reward. This could be a small discount of 2% off their invoice if they pay within 14 days, rather than 30.

  1. Pay money you owe at the last moment

A wise owner will pursue a policy of “Do what I say, not what I do”. It’s a great idea to pay your bills on the date they are due and keep your money in your account for as long as possible. You should set yourself reminders as to when a payment needs to be made to avoid paying late and being charged late fees.

  1. Ask for Deposits where possible

Here at Rowtec, we tend to ask for an upfront cost when taking on a big job. This helps covers costs of materials and gets the project off to a great start. It is perfectly acceptable for the customer to pay a percentage of the projected total bill before work begins.

If you’re providing a service repeatedly over a period of time, for example maintenance or gardening, you can pre-sell these services for a set period, such as a year.

  1. Avoid Late Payments

Because cash flow is so critical to your business, it’s crucial that you keep a close eye on your customers and their payment habits. You can’t afford to ignore customers who habitually pay late or not at all. You should send reminders to these customers that you have flagged up, if reminders don’t work, consider involving a lawyer, as most non-payers will cave in on receipt of a legal letter.

  1. Review you Cash Flow before you Invest

Whether you are considering new equipment, a new employee or even new stock, get in the habit of first checking your current and projected cash flow before you invest. Make absolutely sure that you really can afford to spend money before you take the plunge.

Cash Flow = Success

There are far more exciting things to do to keep building your business, but there are few things as important as managing your cash flow.

20 Years

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