Fighting with Business Cash Flow?

Fighting with business cash flow. Ten pointers to improve your business cash flow problems during Coronavirus COVID19 and beyond.

November 21, 2020, by John

Cash flow represents the incomings and outgoings of a business. 

Cash flow represents cash flowing in a business then out.  

When your company cash flow is insufficient, then act fast before pressures from creditors. 

The cash flow enigma 

Proper company cash flow management is crucial to the viability of any business. Managing the cash flow of a business is very difficult.   

A current study determined that 61% of small businesses throughout the world, struggle with cash flow, with approximately one-third of those surveyed powerless to either pay suppliers, bank loans or pay themselves to negative cash flow issues.  

What are the typical causes of cash flow difficulties?

Numerous circumstances can create cash flow difficulties; however, most typically, these comprise:  

  • Inadequate financial control:  
  • High Finance Costs acting as a cash flow burden;  
  • Seasonal highs and lows creating troughs; 
  • Delayed generation of invoices; 
  • Overdue payments by debtors; 
  • Agreeing to high-interest loans;
  • Diminishing turnover of the business;  
  • Unforeseen costs or customer refund requests;  
  • Small customer base; 
  • High operating expenses;
  • Inadequate management of company credit control;  
  • allowing credit recovery time extends to debtors.

How to restrict cash flow issues

When a business suffers a cash flow problem, several tactics allow managers to limit and solve cash flow issues while carrying out a turnaround.  

From cutting costs and raising prices to improve your invoice system and even seeking professional help, here are our 10 top tips:  

  • Understand your business situation fully financially.  

Director and Business owners need to ensure complete control of their business finances to succeed and avoid insolvency. Daily financial information that’s is updated, needs to be at the tips of the Directors so they may react yo protect their businesses position—failing which, they may fail.  

So take control firstly of your businesses flow of cash in your business bank account. Not doing means you will have no idea of your company correct financial position. 

  • Produce a cash flow forecast

Every business must keep a cash flow forecast. A forecast helps you stay clear of a cashflow when not knowing up to date data. Forecasts allow managers of a business to mote the ins and outs of cash and when, if required to arrange further funding, thus avoiding issues especially with seasonal businesses. 

  • Obtain a flexible line of credit  

So to move forward with your plans, your business benefits greatly when a flexible line of credit is agreed, allowing quick access to funds while bolstering cash flow, when your business requires support over a bad cash flow period.  

The use of, short-term business loans, company credit cards and overdraft facilities raise cash quickly. Ensure you find the right source of finances that’s right for your company. Ensure affordability so as not to place any additional financial strain on your business.  

If facing pressure from the HMRC while in a short term cash flow situation then consider raising capital to pay HMRC

  • Establish clear payment terms  

To check invoice issues and cash flow struggles further down the line, it’s essential to set out clear payment terms with clients from the commencement of any trade.  

ENSURE, from day one, what your payment terms are in writing, including how much your services are, further are your payment terms weekly, monthly, upon delivery?   

You terms of trade need to highlight late payment charges. Make the late payment clause as straightforward as possible, high lighting the late payment fees charged. 

Terms should be as specific as possible. Your client should understand them in full and then agree to them, signing the terms, before any work commences or any products ordered. 

Ensure every document, *Statement, Invoices, Credit Notes, Delivery notes, Estimates and engagement letters have terms printed on the document. Perhaps consult a solicitor for assistance.

  • Improve your invoicing system

The quicker you invoice, the faster you receive payment. So, make sure your invoicing system remains efficient. Chasing payment is priority one. Overdue payments are a significant problem that is expanding causing issues in businesses in the UK.  

It’s essential to ensure your invoicing process is as robust and efficient as possible.  

  • Send invoices as soon as orders completed;
  • ensuring you address the invoice to the correct person;
  • scrutinize invoices ensuring completed correctly;
  • don’t be afraid to chase payments!  

“The day after the payment due, remind your customer that they need to pay via email. Then phone each day continuously till you receive payment”. 

  • Consider using invoice factoring or discounting.  

Invoice discounting allows a company to raise money against invoices raised for goods or services performed through a financial institution. Factoring is a transaction and a kind of debtor finance when a business sells its accounts receivable to a funder or bank.  

Both are potent business tools where you essentially raise money from your debtor ledger.  

The lender will look at your:

  • invoices;
  • customer base; 
  • your overall business.

They then may base their offer on how much to advance, on risk issues.

Allowing working capital advances against that asset up to 90% of the approved invoice value—usually, all invoices required to pass through the factors while improving the businesses cash flow.  

The factoring company create a new bank account in your company’s name to collect customer payments, and you will then be allowed to ‘drawdown’ on cleared funds.  

The aforementioned offers an attractive solution for small businesses because it helps company growth, it is relatively inexpensive, and the risk is low. 

  • Lower operating costs

During a cash flow crisis in your business, firstly cut costs. However, it’s essential to thoroughly examine which costs to cut – don’t cut away at any cosy. Some remain essential to the profitability of your business.  

Review:

  • all operating costs and ask if required? 
  • Is overtime required? 
  • Can you move to a more cost-effective premise? 
  • Can suppliers offer a better deal?  
  • Raise your prices.  

After lowering operating costs, then consider raising your prices. Are you charging sufficient for the services you offer? If not, it might be an opportunity to increase your prices?

However, it’s essential to assess the situation beforehand: Consider the effect an increase in prices has on your customers? Perhaps a price increase may push customers elsewhere?  

Note, though, raising prices can have an adverse effect. Careful consideration is required.  

  • Liaise with your suppliers  

If you’re struggling with cash flow, it’s essential to be open and honest with your suppliers. Don’t allow demand letters chasing payment mount up—contact creditors with an offer to pay something until your business cash flow corrects itself.  

Failing to act, then you may face legal action for non-payment or indeed become personally liable, so you must not bury your head in the sand.  

  • Consult a cash flow specialist  

Finally, if you are experiencing recurring company cash flow problems that are making it difficult to make payments, it’s essential to seek expert advice to turn things around.

Ongoing cash flow struggles may cause solvency issues for your business? So it would be best if you acted fast. Once your limited company is insolvent, you must legally as a director, prioritize the interest of your creditors. Therefore, you must turn things around while protecting creditors and employees interest and not letting their position worsen.  

What options are available if I fail to manage cash flow?

What does business recovery mean?

When a limited companies cash flow goes out of manageable control, company directors must seek the advice of a licensed Practitioner if the business is viable but needs a rescue procedure. Then the IP may suggest the company considers a company voluntary arrangement.

If the pressure is on the company and it has no time to arrange a CVA, but liquidation is not suitable the company administration is fast to set up and will ring-fence the business while matters are sorted.

If the cash flow is beyond repair and the business is not considered viable moving forward. Then closing the business using a voluntary liquidation remains an option

HBG Advisory have Licensed Insolvency Practitioners with years of expertise and knowledge in helping businesses turn things around. 

The Team At HBG Advisory

There’s no need to face a financial challenge alone – please call us now for FREE initial guidance on FREEPHONE 0800 612 5448 or book a FREE initial VIRTUAL meeting safe and private in your own home or workplace.