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Business Cash Flow Problems & Solutions

Overview

  • Producing accurate cash flow forecasts is an integral part of a healthy cash flow within a business
  • Always invoice properly and promptly. If you receive payment late, then you may end up making late payments yourself which will restrict cash flow. Enforcement against debtors should be considered
  • Cash flow problems have a lag behind the underlying cause of the problem. These causes need to be understood and tackled

Business cash flow is fundamental for any business. Even if your company has healthy order books and impressive profit margins, you will be unable to pay your suppliers, employees or HMRC on time if you run out of cash. As a result, your business may face insolvency.

Below are some areas for directors to concentrate on regarding business cash flow solutions.

Credit management

In order to know what’s coming in and going out, you need to produce a cash flow forecast. This should be regularly updated and reviewed for any variances. If you hear that a customer is experiencing financial problems, talk to them; likewise keep your suppliers in the loop if you know that you’re not going to be able to pay them on time.

Payment terms

Your cash flow will be put under significant pressure if you don’t get paid when you’re expecting to for goods or services provided. Make sure you agree terms of payment (TOP) with your customers in advance – and in writing – and run credit checks on all new customers. Where possible, try to negotiate more favourable terms with your suppliers than with your customers.

Invoicing

Healthy cash flow requires an efficient invoicing system. Invoice promptly after supplying goods or a service, and ensure that you have included all the required information – especially if you are VAT registered – as any mistakes will delay payment.

Receivables

A sale is only complete once full payment has been received. Follow up overdue invoices as soon as the due date has passed; be polite yet assertive about your expectations. Maybe contact a customer before the due date to check payment is on the way. If a customer is a frequent late payer, you will need to decide whether or not to continue supplying them.

Payables

As well as chasing money coming in to the business, effective cash flow management requires delays in cash going out. Scrutinise all costs to find ways of minimising them and push creditors’ TOP to the full.

Factoring

Finance and invoice factoring can offer your business a breathing space if you have a cash shortfall. Instead of having to wait weeks or months to collect on an invoice, you can receive partial payment (usually 85%) now. Inevitably there is a cost to factoring and these should be understood before agreeing to any arrangement.

How FA Simms & Partners can help

When we are approached by a business who is suffering from business cash flow problems, we like to ensure we deal with the source of the problem, not just the latest issues. By going to the source and hopefully eliminating the problem, there are many business rescue options that can help a company turnaround and provide cash flow solutions rather than entering full closure liquidation.

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