Managing Cash Flow: Keeping Your Business Solvent

Cash flow kills more trade businesses than lack of work. You can be fully booked and still go bust if money isn't coming in when bills are due. Here's how to keep cash flowing.

The Cash Flow Problem

Trade work has inherent cash flow challenges:

• Materials paid for before jobs start
• Labour provided before payment received
• Larger jobs mean longer payment gaps
• Late-paying customers are common

Invoice Promptly

The sooner you invoice, the sooner you get paid. Invoice:

• On completion, not at the end of the month
• With clear payment terms stated
• Including all agreed work - don't forget extras
• To the right person - find out who handles payments

Stage Payments

For larger jobs, structure payments at milestones:

• Deposit before starting (covers materials)
• Progress payment at defined stages
• Final payment on completion

This protects both you and the customer.

Deposits and Retentions

Deposits aren't greedy - they're sensible. A deposit of 20-30% covering materials is reasonable. Customers expecting credit need to understand they're asking you to fund their project.

Chasing Payment

When invoices go unpaid:

• Send reminder at 7 days
• Phone call at 14 days
• Final notice at 21 days
• Consider statutory late payment interest
• Small claims court for persistent non-payers

Building a Buffer

Aim to have enough cash reserved to cover:

• One month's fixed costs minimum
• Tax obligations (kept separately)
• Vehicle and tool replacement fund

Credit Facilities

Trade accounts with suppliers spread material costs. Business credit cards provide short-term flexibility. Only use these as cash flow tools, not to fund losses.

Know Your Numbers

Track money coming in and going out. Simple spreadsheets work. Know what's outstanding, what's due, and what's in the bank. Surprises are expensive.