Cash Flow Is Not Your Bank Balance – A Shopfitter’s Guide
Your bank balance is just a snapshot—a moment in time. Cash flow, on the other hand, is the movement of cash in and out of your business.
Understanding this flow is crucial to ensuring you don’t run out of cash, and to making sure you have a buffer to cover your outgoings. Sometimes known as The Cash Cycle, you have to pay money out for money to flow back in—the aim is to make that cycle as short as possible.
This is especially important when growing a business. An aggressive growth strategy, combined with customers taking longer to pay than agreed, can reduce your bank balance or create an even bigger overdraft!
How Can You Improve Cash Flow?
The first thing you need to know is how long it takes customers to pay you. There is a well-known metric for this—your Debtor Days.
It’s a good plan to make sure your sales invoices are raised immediately. Delays in invoicing extend the time it takes to get paid.
Then you need to monitor:
✔️ How long you take to pay suppliers—another well-known metric, your Creditor Days
✔️ Your Stock Days, if your stock levels or work in progress are a big number
Understanding Your Cash Flow Cycle
Every shopfitting job starts by buying goods and employing labour to make the units, often having to pay for these a long time before you get paid. Ideally, you negotiate longer credit terms with suppliers, effectively borrowing from them until payment is due (an interest free loan).
Once materials are processed, they become Work in Progress (WIP) or stock before you can raise an invoice to make a sale. The product is then often sold on credit terms, turning customers into debtors—be careful, because you are essentially lending them money until they pay.
The time between buying the first item and receiving payment for sales can be significant, tying up cash reserves. This cycle is known as the Working Capital Cycle or Cash to Cash Cycle, so keeping it as short as possible is key to maintaining a healthy cash flow.
Your Strategies to Improve Cash Flow
1. Increase Creditor Days (Supplier Payments)
✅ Review creditor days regularly
✅ Negotiate better supply terms
✅ Pay suppliers on specific days
✅ Ensure suppliers follow your process
✅ Track and record the cash flow impact
⚠️ The trick is not to abuse supplier relationships—maintaining a good supply chain is crucial. Make sure you avoid being put on stop or moved to pro-forma payments.
2. Improve Stock Days or Stock Turnover
✅ Review stock days regularly
✅ Identify slow-moving stock
✅ Find ways to convert stock into cash
Ask yourself:
- Is holding this stock critical to your customers?
- Can customers hold a buffer stock instead?
- Can you require pre-payments for slow-moving stock?
3. Improve Debtor Days (Customer Payments)
The things to concentrate on:
✅ Review debtor days regularly
✅ Raise invoices immediately
✅ Conduct credit checks
✅ Consider adjusting (lowering) credit terms
✅ Chase invoices before they are due
✅ Use multiple communication methods (with scripts)
✅ Request deposits and stage payments
Tracking and recording the cash flow impact of each of these steps will help you manage your working capital effectively.
💡 Cash flow is the lifeblood of your business—keep it flowing!
If this resonates with you or you find it interesting, why not book a meeting to see what else we can do to help you?
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