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If your business has hit a sudden cash flow crisis, the most important thing to realise is that you’re far from alone: almost every growing business, however well run, encounters cash flow problems from time to time.
That said, it’s vital to react quickly to the issue and find a solution rather than burying your head in the sand.
In simple terms, you have a cash flow problem if the money coming into your business is less than the money flowing out. Put even more basically, it means that you’re faced with bills you cannot pay. So how do cash flow problems arise?
Your first reaction might be to think that they result from a sudden downturn in business and it’s certainly true that this can catch you unawares and leave you with fixed financial outgoings and reduced income.
However, it’s also true that fast-growing companies are at a particular risk of cash flow crises. Why? Because they’ll have to invest in raw materials, people and equipment to service their new customers before those customers pay them.
Of course, poor financial management can contribute significantly to cash flow difficulties, so it’s vital to forecast your cash carefully, monitor your costs closely and exercise iron discipline when it comes to credit control.
1. Make sure you get paid faster
Sales do not equal cash in the bank until you’ve actually been paid. Consequently, you should not allow your customers to become tardy in their payments and should always remain aware that the longer you allow unpaid bills to elapse, the less likely you are to get paid at all.
If you’re dealing with large corporate customers, you may find that their payment terms are relatively inflexible. However, that’s no reason to allow a customer on 30-day terms to pay in 40, or a customer on 60-day term to pay after 70.
As soon as the deadline has been hit, an automatic alert should activate in your system, triggering your accounts team to begin diplomatic yet relentless and escalating collections activity.
Another approach that can work with tardy payers is wielding both a carrot and a stick – offering a discount of, say, 5% for payment within a week whilst levying statutory interest for any late payments.
2. Pay your suppliers more slowly
Conversely, paying your own bills more slowly can have a very positive effect on your cash flow problems. You may find that your suppliers will be happy to renegotiate your terms of business in order to keep your custom, extending payment deadlines from 30 to 45 or even 60 days. This could have a dramatic effect on your financial position.
3. Control your costs carefully
Reducing your outgoings won’t just transform your cash flow. It can significantly boost your profitability too.
Some of your outgoings will inevitably be fixed, but for others there will be plenty of scope for trimming. Moving to smaller premises with lower rent (particularly if business appears to be contracting rather than growing), renegotiating your fixed line telephony and mobile contracts, changing broadband suppliers or identifying cheaper sources of raw materials will significantly boost your bottom line.
4. Remember to prepare for contingencies
Whilst everything may appear to be going well with your business, the unexpected could happen at any moment. Don’t forget that expensive equipment could fail, good customers can hit cash flow problems and start paying more slowly, and that from time to time you will encounter bad debts.
It’s important to keep a small cash cushion on hand to deal with such emergencies, though stockpiling huge amounts of money that could be better used to drive business growth can be a very bad move.
5. Maintain accurate cash flow forecasts
In business, forewarned is forearmed, so you should prepare a detailed cash flow statement that can be dynamically updated the instant anything changes. This statement should forecast when you expect cash (i.e. payments from customers) to hit your account and when you expect outgoing payments (rent, bills, taxes) to leave.
Remember to include everything in the statement and to forecast dates and amounts accurately – in particular, don’t be tempted to assume that every customer will pay on time. Make your cash flow statement as pessimistic as possible – that way the only surprises you are likely to receive will be positive.
Cashsolv are the experts in small business finance and we can provide the expertise and assistance you need if you hit a cash flow crisis. Here are just a few of the ways in which we can help:
If you’ve got bills looming and no way to pay them, you may feel your back is against the wall. However, with an emergency business loan from Cashsolv disaster can be averted. We can have the funds inside your account in under 24 hours.
Our specialist debt collection division can negotiate with late paying customers on your behalf to secure the best possible resolution. Our bespoke approach, in which we treat every debtor differently, is far more effective than sending out standard letters.
Our experience extends across every industry sector, and we go the extra mile to ensure that disputes can be settled without the need for legal action.
For a longer-term solution, invoice factoring or discounting can tame a troublesome cash flow forever. We’ll allow you to borrow up to 85% of the value of your invoices as soon as you issue them. As such, it’s like getting paid instantly!
Opt for factoring and we’ll assign experienced credit control professionals to secure early payment. This will reduce the interest you pay and enable you to outsource the entire collections procedure, saving you staff time and money.
Alternatively, if you prefer to handle your own collections, you should opt for invoice discounting.
If all else fails and your company simply can’t meet its obligations, a Company Voluntary Arrangement (CVA) could be the answer. An effective alternative to liquidation, a CVA gives you breathing space against legal action whilst you attempt to restructure your business and keep it on its feet.
You may be able to negotiate a partial settlement with your creditors who could receive nothing if the company is liquidated and consolidate all your debts into a single monthly payment.
Best of all, you will remain in control of your company without an administrator being appointed and will be able to continue trading indefinitely if the CVA is successful. Cashsolv are the experts in arranging CVAs and we’ll go the extra mile to keep you in business – no matter what it takes.
To discover how we can help you prevent cash flow problems from occurring, and quickly resolve them if they’ve already happened, get in touch with us today. Working together, we can guarantee a brighter future for you and your business.
For further information Download our Guidance Paper on 'How to deal with a cash flow emergency’, or view the following relevant pages: