‘If you look after the pennies, the pounds will look after themselves’ suggests that by taking care of small amounts should soon accumulate capital. Whilst this remains an astute phrase, the volume of businesses struggling with poor cash flow is on the rise and shows little sign of relenting.

By simplifying business operations, a tighter rein on cash flow can be achieved. This in turn can reduce working capital and therefore free up cash – and in many cases, archaic processes can be eliminated totally.

Let's explore how:

1) LATE PAYMENTS IN TOUGH ECONOMIC TIMES

As businesses continue to struggle for survival, the £billions owed in late payments directly impacts and places significant pressure on their cash flow.

Michael Chambers, Managing Director of Bacs, states that: "Action must be taken to address this payment issue; but businesses also have to take responsibility” by reducing payment terms and encouraging direct payment into bank accounts it could help shorten delays and avoid 'cheque in the post' excuses."

Payments and collections are two of the most critical elements of the cash flow cycle. By tightening controls around these areas, a business is far better placed to deal with poor cash management.

2) B2B DIRECT DEBIT COLLECTIONS

Although cheques are dramatically declining, they are still a favoured form of B2B payment. Having formed the backbone of UK payments and survived the test of time, they have traditionally armed businesses with a plethora of excuses for late payment.

Currently, B2C (business to consumer) Direct Debits operate as the only system that enables a business to regularly collect payments from its customers without manual intervention.

A B2B Direct Debit system, mirroring the current B2C one, would facilitate the eradication of older, inefficient payment methods such as cheques and cash, virtually guaranteeing the regular arrival of funds directly into the business’s bank account, eliminating the dreaded question: ‘When will I get paid?’

3) FASTER PAYMENT - DIRECT CORPORATE ACCESS

Introduced in May 2008, The Faster Payments Service introduced a same day payments system to rival CHAPS, enabling consumers to instantaneously transfer money between accounts.

A year later Direct Corporate Access for Faster Payments giving businesses the same immediate payment capability, also providing them with an inexpensive contingency for late payments to staff and suppliers.

By making and receiving Faster Payments, businesses can enjoy reciprocal benefits that come with paying promptly. This in turn allows cash flow to be viewed as a constantly fluctuating entity. By knowing exactly what cash is available when, a business is better placed to make crucial decisions regarding investment opportunities, to negotiate new supplier terms and reassure stakeholders of its financial stability.

4) THE FUTURE & TECHNOLOGICAL IMPROVEMENTS

Whilst plans to halt the late payment epidemic may be ambitious, the technology is readily available to aid businesses in such adverse conditions. They are able to install intelligent payment or collection software to integrate with existing systems and with minimal disruption to the infrastructure.

While the payment of invoices remains a major cause of sleepless nights for finance staff, the importance of their accurate delivery is paramount. Companies can make use of e-document distribution applications and experience significant ROI inside 1 year.

Businesses have at their fingertips the technology to enable invoices and payments to be sent and received at the touch of a button, facilitating a slicker business model. This, coupled with the initiatives already in operation to improve the cash flow cycle, should ensure that businesses are able to not only survive but thrive in the face of adversity.

In a modern, recession-hit society, cash flow becomes the linchpin that holds together all businesses and keeps the wheels of commerce turning smoothly. Without a clear view of what working capital is available, it becomes difficult to forecast and remain competitive in markets that are proving a stern test for even the most well-established companies.