Charlotte Reeves
Cash flow is not the same as profit
A business can be profitable on paper and still run out of money. Profit is what's left after costs over a period; cash flow is what's actually in the bank when the wages, rent and supplier bills fall due. During quiet trading spells, that difference becomes very real very quickly, and it's usually the reason otherwise healthy small businesses get into difficulty.
The good news is that cash flow responds well to a few consistent habits. None of them are complicated, and most cost nothing but a bit of discipline. Here are the ones we see make the biggest difference.
Invoice promptly, and get the details right
The single easiest win is to send invoices the moment work is done or goods are delivered. Every day you delay is a day added to your waiting time. If you invoice in batches at month end, you're effectively lending your customers weeks of free credit without being asked.
- Invoice the same day wherever possible, or the next working day at the latest.
- Agree terms up front in writing — 14 or 30 days is reasonable. Long, vague terms invite late payment.
- Include everything a payment system needs: a clear invoice number, purchase order reference, a specific description of the work, the amount, VAT where applicable, and correct bank details.
- Send it to the right person, not just a generic accounts inbox. Ask your contact who approves invoices and address it to them.
- Offer several payment methods, including bank transfer and card. Friction delays payment.
Consider a small early-settlement discount — even one or two per cent for payment within seven days. It's not right for every business, but it can pull money forward when you need it most.
Chase late payments politely, but persistently
Most late payment isn't malicious; it's an invoice sitting in someone's queue. A calm, well-timed nudge does far more than an angry one. Build a routine and stick to it.
- Send a friendly reminder a few days before the due date, confirming the invoice is scheduled for payment.
- Follow up on the day it's due if nothing has arrived, then again at seven and fourteen days overdue.
- Pick up the phone after the second email. A short, warm call often resolves in minutes what emails cannot.
- Ask for a date, not a promise. "Can we agree payment by Friday the 14th?" gives you something to hold to.
- Keep a paper trail of reminders and calls, in case you need to escalate.
It also helps to know your rights. Under the Late Payment of Commercial Debts (Interest) Act 1998, you're entitled to claim statutory interest — currently 8% above the Bank of England base rate — plus fixed compensation for late payment of a commercial debt. Mentioning this gently in a final reminder is often enough to move an invoice to the top of the pile. Many businesses also add a clear late payment clause to their terms.
Negotiate your supplier terms
Your outgoings matter just as much as your income. If you're paying suppliers in seven days while your customers pay you in sixty, you're permanently funding a gap. Ask to rebalance it.
- Ask for longer terms — moving from 14 to 30 days is a normal request and often agreed without fuss.
- Align terms with your own cycle. If customers pay you in 30 days, ask suppliers for 45.
- Consider staged payments on larger purchases rather than one lump sum.
- Ask about early payment discounts — but only take them if the maths genuinely works in your favour.
- Review subscriptions and recurring costs each quarter. Small monthly charges quietly add up.
If cash is tight, talk to suppliers before a payment is due, not after. Most would rather agree a short plan than chase a debt, and it protects the relationship.
Use tax schemes that work in your favour
Tax timing is a legitimate part of cash flow planning. The VAT Cash Accounting Scheme, for example, lets eligible businesses account for VAT when money actually changes hands rather than when they invoice, which is a real help if customers pay slowly. Annual Accounting, if you qualify, means one VAT return a year instead of four.
Remember key dates too: corporation tax is usually due nine months and one day after your accounting year end, while Self Assessment payments on account fall on 31 January and 31 July. Diarise them and set money aside monthly — a separate tax savings account removes the sting entirely. If you're struggling to pay HMRC, contact them early; Time to Pay arrangements are more common than people assume.
Build a small buffer and a simple forecast
You don't need complex software. A straightforward spreadsheet showing money in, money out and the closing balance week by week will show you a squeeze coming weeks before it arrives. Update it fortnightly, and check it before you commit to any new spending.
Alongside that, aim to build a buffer covering at least one to three months of essential costs. Start small — even a standing order of a modest amount into a separate account builds the habit. Chase debts consistently, keep your own payment terms realistic, and keep talking to your accountant about the timing of tax bills. Do those things and quiet periods become manageable rather than alarming.
