Steve Deutsch, chief executive of Wesleyan Bank, offers his top five tips to help law firms stay on top of their finances.
Maintaining a healthy cashflow is vital to the survival and prosperity of any business, but it can be very difficult to manage effectively without the right processes in place. Below are my top five tips for effective cashflow management for law firms.
1. Establish a clear credit control policy
It’s vital that businesses introduce consistency and clarity to their credit control procedures, and communicate these to their staff and customers from the outset. Focus on agreeing clear payment terms and how much credit can be extended to customers, and implementing set dates when debtors are chased by telephone, email and in writing.
Leading credit control software can support businesses to accurately manage all debtor information within a single system, reducing the administrative burden and errors associated with paper-based processes or spreadsheets.
2. Utilise modern technology
Cloud-based accounting and eInvoicing applications enable smaller businesses to take a pre-emptive approach to boosting cashflow and proactively address issues around late payments. eIinvoicing solutions save time by eliminating inefficient manual purchase-to-pay processes and provide an audit trail to show that invoices have reached their intended recipients on time and haven’t gone ‘missing’ in the post. They also ensure that the invoice information is 100 per cent accurate, removing another reason for their customers to delay payment.
eInvoicing solutions offer mutual benefits for businesses, customers and suppliers. Administration costs are dramatically reduced and the cost for this technology can be covered by additional rebates organisations are able to negotiate through paying promptly.
3. Use finance to fund major investments
Businesses should consider using external finance providers when seeking funding for any major capital expenditure projects. Specialist lenders can secure competitive rates and manage each transaction meticulously from start to finish. Companies can also opt to lease the assets rather than sign up to a straight hire-purchase deal. Although there is a cost to the debt, it is tax-deductable, which can offer short- and long-term cashflow benefits.
4. Leverage the Annual Investment Allowance
This allowance, set to £200,000 from April 2016, allows businesses to write off the costs of certain assets against profits in the year of purchase. This helps to bring quicker tax relief against capital expenditure and preserve vital cash reserves. Most assets purchased for business use qualify, including IT investments, office equipment and plant and machinery.
5. Plan ahead
Firms should always plan ahead and set aside extra money when tax and VAT deadlines approach. But in the event of them being taken by surprise, organisations may wish to consider applying for short-term finance to cover the shortfall without putting a strain on their cashflow. It’s important to remain open-minded and look for a provider which understands your challenges, is prepared to spend time talking to you, and doesn’t offer a one-size-fits-all approach. Talk to your business bank – but then compare what they can offer and what else is available.
A version of this article was first published on the Small Firms Division website in September.
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