Small changes to policies and processes could help SMEs improve their cashflow levels, a senior finance professional has said.

Matthew Grant, Yorkshire Head of Accountancy and Business Advisory at international accountancy and business advisory group Azets, is encouraging business owners to think strategically about their terms of trade and customer relationships, and review their debtor days, and payment processes and policies.

His five key tips are:

1. Implement robust terms of trade: clearly setting out terms and conditions at the start of a new working relationship puts everyone on the same page and gives the business protection if a client fails to pay or becomes insolvent. These documents should be reviewed by a commercial lawyer and updated as the business grows and evolves so they cover any new ways of working and changes in processes.

2. Have a process for ending relationships with clients who don’t pay you: a clear policy setting out when and why a client will cease to be a client allows a business to professionally walk away from relationships that aren’t working as soon as it can. This should be part of a business’s terms of trade, and firms should have a process for alerting clients that they haven’t met their payment deadline and informing them about the steps they’ll take if their invoices aren’t paid within a certain timeframe.

3. Be proactive with your debtor days: many businesses set debtor days, but they should be treated as the start of a process rather than a figure to be monitored. Keep a strict eye on them, and take action if people go over them – it’s a very easy way for a firm to improve its cashflow and its ability to pay its own bills more comfortably.

4. Use payment gateways and direct debits: payment gateways provide an easy way of settling an invoice via a link or QR code which makes it quicker and easier for clients to pay, while agreeing payment via direct debit guarantees the payment date and takes away some of the hesitation around paying that’s typically associated with cash or BACs transactions.

5. Consider early payment discounts: offering early payment discounts to carefully selected customers can help boost cashflow, save money on warehousing and storage costs, and potentially free up time during busy periods by allowing certain goods and services to be shipped or delivered earlier in the year. This is best offered on products and services with a high margin and only when doing so benefits the supplier.

Matthew Grant says:

“Cash is king in business, and keeping a close eye on who owes you money, how you tackle your debtors, and how you can make it as easy as possible for your customers to pay can have real tangible benefits – for your business and your bank balance.

“A lot of these ideas may seem like common sense, but we find they aren’t typically common practice and at a time like this when costs are rising and many firms are concerned about paying their bills, implementing them could lead to a better financial position and less worry for the business’s owners, directors and staff.”