By Keith Tully
When it comes to proper budgeting and accounting, what most people tend to overlook is the prevention and preparation aspect. Without adequate planning, all the right data in the world won’t help once your bank account is over drafted all thanks to a simple oversight. Keep these five easy tips in mind for maintaining a healthy company bank account balance and eliminate the risk of potential company cash flow problems in the future.
1. Require a down payment or ask for payment upon completion.
Service providers and suppliers with ongoing product agreements often put themselves in tough predicaments by extending their services and then agreeing to wait two weeks, a month, or even two months later to be paid. This can create a challenging situation in which you’ve been working hard and spending time pleasing clients, but still don’t have the money to show for it. While you’re waiting on clients to pay, your bills are stacking up and in the meantime the risk of going into debt is rising with every passing day. If you can’t get a client to make a down payment then request that they agree to pay upon completion of services rendered or upon delivery of the product.
2. Create a bank account devoted to budgeted expenses.
After devising a budget one way you can make sure you don’t go over your allocated spending amount is to keep it in a bank account dedicated specifically to monthly business expenditure. This not only prevents the possibility of withdrawing too much inadvertently, it also simplifies the process of accounting and reporting during tax season. You may also want to have some sort of overdraft protection active for this account and link it to a savings account so that you can easily transfer funds if you happen to spend a lot less than planned.
3. Apply for a line of credit with your bank, to be used only for emergencies.
With so many people heavily in debt many experts have stopped recommending that people use lines of credit, but the fact still remains that having access to funds in times of need is a powerful tool to have in your arsenal, and when used properly it can get you out of some tough spots. Apply for the largest line of credit you can obtain approval for, but only use it when you absolutely have to.
4. Avoid paying for subscriptions that auto renew.
Automatic billing can be a recipe for disaster if you forget about upcoming expenses. In fact, forgotten autobill commitments may be one of the leading causes of surprising bank overdrafts. Autobilling agreements can become especially confusing and burdensome when the charges are scheduled to take place at different points throughout the month. Try to minimize the amount of automated payments you have coming out of your bank account on a monthly basis and you’ll find that your company will encounter less problems with unexpected budget lapses.
5. Consider invoice discounting and factoring.
If your clients are other businesses and they have a good history of paying on time and in full then you may be able to get an advance on your outstanding invoice payments using invoice discounting or factoring. Both of these services would allow you to gain instant access to the funds that you’re waiting on clients to pay. If you can gain approval for an invoice discounting or factoring program you can literally supercharge your company’s cashflow at all times.
The primary difference between factoring and discounting is that discounting would leave you liable for repaying the lender as soon as your clients pay, whereas a factoring service assumes the responsibility of collecting payment directly from your clients on your behalf, and with factoring you’re not held responsible if the client fails to pay. For this reason factoring is typically more difficult to obtain approval for.
Although it is impossible to account for and predict every possibility in the world of business, it is possible to take the necessary steps to ensure that you’re prepared in the event of a mishap. If you’re currently having trouble maintaining a healthy business bank account balance and you feel that your company is failing it would be wise to consult with an insolvency practitioner.
Author Bio: As a Managing Director and licensed insolvency practitioner with Real Business Rescue, Keith Tully has advised many distressed companies on how to improve cash flow, maintain healthy bank balances, and recover from ongoing debt problems.