The Cash Flow Trap
Many profitable trades businesses fail due to cash flow. You can be busy, well-priced, and still unable to pay suppliers because money's tied up in:
- Outstanding invoices
- Materials on credit
- Work in progress
- Customer deposits
Understanding Your Cash Cycle
Cash goes out:
- Materials purchased
- Wages paid
- Overheads due
Cash comes in:
- Customer deposits
- Milestone payments
- Final invoices paid
The gap:
If you buy materials on Day 1, pay wages on Day 7, but get paid on Day 45, you need 44 days of cash to bridge.
Improving Cash Position
1. Collect deposits
Standard: 25-50% upfront for larger jobs
Materials: Request material costs as separate deposit
Messaging: "To secure your booking and order materials"
2. Stage payments
For longer projects:
- Deposit: 25%
- First fix complete: 25%
- Second fix complete: 25%
- Completion: 25%
Don't continue work with unpaid milestones.
3. Invoice immediately
Same day as job completion, not end of week.
4. Shorten payment terms
"Due on receipt" or 7-day terms, not 30 days.
5. Make payment easy
Card payments, bank transfer details on every invoice, payment links.
Automation for Cash Flow
Invoice automation:
- Job marked complete → invoice generated
- Invoice sent automatically
- Payment reminders at 3, 7, 14 days
- Overdue alerts to you
Payment collection:
- Card payment links in invoice
- Direct debit for regular customers
- Automatic receipt confirmation
Cash flow forecasting:
- See expected income by week
- Track overdue amounts
- Identify cash crunches early
Dealing with Late Payers
Prevention:
- Credit check larger customers
- Clear payment terms upfront
- Deposits and milestones
Early stage (1-14 days overdue):
- Automated reminders
- Phone call to check receipt
- Ask about issues
Medium stage (15-30 days):
- Formal letter
- Stop further work
- Payment plan discussion
Late stage (30+ days):
- Final letter
- Statutory late payment interest
- Small claims / debt collection
Building Cash Reserves
Aim for 3 months of operating costs in reserve. Build gradually:
- Set aside 5-10% of each payment
- Keep in separate account
- Don't touch except for emergencies
This buffer transforms business stress.
Seasonal Planning
Most trades have seasonal variation. Plan for:
High season:
- Collect extra deposits
- Build cash reserves
- Don't overextend
Low season:
- Marketing for next busy period
- Maintenance contracts for steady income
- Reduce variable costs
