Top 10 cash flow tips for IT Contractors

Cogent Accountants have prepared a quick guide for IT Contractors to help them understand cash flow. Before we begin with the cash flow tips, let's try and understand what is cash flow.

What is cash flow?

A simple explanation of what cash flow is ‘it’s the money coming into and out of the business’. You should always be focussed on getting more money coming into the business than going out of it.

Having lots of clients and winning more contracts looks great on paper but if you haven’t got the money coming in it is not a true representation of how well you are doing. A lot of contractors have gone out of business and this is not for a lack of work, but cash. Hopefully, you won’t find yourself in this situation.

The importance of good cash flow for Contractors

As a contractor, the days of receiving a regular pay cheque are behind you. It is now your responsibility to maximise your income, pay your taxes and minimise your expenses. Keeping a tight grip on your cash flow is the most important aspect of running your contractor business. This article gives you some simple but effective tips on how to successfully manage your cash flow:

1. Invoice promptly and accurately

2. Chase up payment when overdue

3. Set out payment terms in your contract

4. Make invoices easy to pay – include all the important details: invoice number, date issued, payment date, a description of services provided and preferred payment method

5. Pay your bills when they become due and not before

6. Think about the future – try to have enough cash in reserve for slow months in business or unexpected costs

7. Try and identify any cash flow problems as early as possible (cash flow forecasting) and find ways to deal with them. Burying your head in the sand and ignoring them will only make matters worse

8. Cut back on unnecessary expenses

9. Don’t give people a reason not to pay: deliver the service you promised. People are happy to pay for a good service and less so for a service that is below par

10. Record, record, record: every purchase you make (not matter how small it is) and all incomings. You should know at all times how much cash your business has

The future’s bright the future is self-employed

A staggering 4.70 million people are now self-employed, with 1.91 million of these freelancers. This figure is set to increase over the coming years. Understanding cash flow and how to manage this effectively is fundamental to the long-term success of these businesses.