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The Caterer

How to… manage your cash flow

28 August 2012
How to… manage your cash flow

Despite most operators' obsession with offering amazing and sustainable food, it's important never to forget that you're running a business. You may love what you do so much that you would do it for free, but without a steady flow of cash, you can lose it all.

A cashflow strategy is anchored around strong client relationships and the reputation of your business; people want to work with those they trust. This means they will be happy to accept your terms of service.

In terms of our business, Leafi Kitchens and Event Catering, 75% of the estimated cost of an event booking is required up front and final invoice satisfied within 30 days. Most of our customers pay well in advance; they're happy to do this because of our reputation.

Managers must be given the responsibility for their venues, to run them as if they are their own business, so they make the right decisions. A budget should be set for each venue each year, so they know what they can spend.

Managers should then be measured against budget on a monthly basis. If they choose to overspend one month, the next month they must be monitored to bring their figures back in line.

It is in their favour to do well for the company as not only will they likely be promoted to a better position when one presents itself, but they should also be financially rewarded.

It's important to know where the money is being spent and that all invoices tally with the sums being paid in and out. Every week it's wise to cross reference with the bank account and the venues' invoices, so nothing is missed.

Ensure you keep stringent records so that you always know who owes what and for how long. All payments should include the invoice reference so there is no confusion as to where they have come from.

If a situation with a late payment arises this must be handled in a firm but fair manner and persistence is key. Any invoices over three months old should receive a personal contact every week until payment is made, to ensure the debt doesn't become a problem.

Fiona Barber is co-founder of Leafi Kitchens and Event Catering

Seven steps to maintaining cashflow

1 Build strong relationships with your clients and deliver an excellent service. People that feel they know you well and are pleased with the work you do for them are more likely to pay you on time, not only because you are a friend, but because they value you and want to be able to call on you whenever they need to.

2 Grow your business's reputation and brand. Customers that trust you and know the services you provide are worth paying for will be willing to accept payment terms that are in your favour.

3 Ask for part or full payment up front. This is negotiable, but be prepared to say no to customers not willing to meet your payment requirements - you cannot afford bad debts.

4 Include cancellation charges in contracts, to ensure you cover all costs incurred for bookings that do not go ahead. As long as the customer is aware in advance, this is perfectly acceptable. It ensures they are serious about the booking they have made and will probably make them think twice before they cancel the booking.

5 Giving managers autonomy is a great way to get them making the right decisions. Ensure they can't overspend by setting an annual budget and ensure they stick to it.

6 Keep detailed records of expenditure and money owing. Use reference numbers and track payments by cross referencing invoices with bank account statements.

7 When a customer has owed you money for longer than the agreed period, make regular personal calls until the payment has been made. Set a deadline for when you will take further action if payment is not received and stick to it.

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