It’s a sad fact of business that almost every company will face cash flow problems at one time or another. Ironically, these can be particularly severe when the business is both profitable and growing.
When you take on new customers, you will need to invest in new people, equipment and raw materials before you get paid. But what happens when you have bills in front of you but don’t have the cash on hand to pay them? Here are a few options.
You could encourage your customers to pay faster
If your customers are on 30-day terms but pay in 60, you can consider a carrot-and-stick approach to speed things up.
A discount of, say, 5% for paying within a week could encourage some of them to pay almost immediately. Conversely you can also add interest for late payment – as you are legally entitled to do – to discourage delinquency.
You could renegotiate your suppliers’ payment terms
Most suppliers would rather get paid late than not at all, and if you’re a major customer, they certainly won’t want you to go under. So, if your own late-paying customers mean you can’t meet their 30-day payment terms, you may be able to change this to 60 days.
If the worst comes to the worst, you may even be able to pay off any arrears via instalments. The main thing is to be proactive and to let your suppliers know about problems early.
You could seek an emergency loan
With an emergency loan, you can have the funds you need on hand fast. At Cashsolv, we can deliver within 24 hours of the initial application. This can make the difference between staying in business and going into liquidation. Though for a long-term solution, you’ll need to consider the next option.
You could introduce invoice factoring or discounting
With invoice finance, you can tame a troublesome cash flow for good. These innovative solutions allow you to borrow against your invoices, the instant you issue them at Cashsolv, we’ll lend up to 85%.
You then repay the loan when your customers pay you. With factoring, we’ll assign experienced credit control professionals to secure early payment, whilst with invoice discounting you retain control of your own debtor ledger.
If all else fails, you could consider a Company Voluntary Arrangement (CVA)
A CVA is a procedure that can be implemented when a company cannot meet its financial obligations but clearly has a viable future.
It gives the business breathing space from legal action whilst it tries to restructure its finances, which usually involves a payment plan offering creditors some proportion of what they are owed.
Provided 75% of creditors (by value) approve the plan, the company continues to trade under the authority of the directors, with a significant proportion of its debts being written off. Any structural issues can be addressed with the assistance of an experienced turnaround practitioner, meaning the business will emerge leaner and fitter for the future.
Cashsolv are experts in CVAs and all aspects of SME finance. To learn more about how we can boost your cash flow, please contact our experts.