How can I get control of my businesses cash flow?

For any business, quite simply, cash is key. It doesn’t matter how big or successful a company is, if there isn’t cash flowing throughout the business, it will struggle. Maintaining a healthy level of cash flow is critical to a business succeeding and surviving. Even if sales are good and there are lots of incomings, if cash is handled effectively to cover the day to day running’s of the business, things can spiral out of control. Sometimes businesses can get unlucky, it could be a bad debt, late invoices or bills coming at the right time, however, there are ways of preparing a business to handle cash flow better and to find potential solutions, when issues arise.

The most common causes of cash flow trouble

A lot of cash flow problems come down to inadequate planning. A cash flow forecast should be one of the most important parts of any business plan and has to be updated efficiently. It needs to include all financial aspects of the business, with all details of the business included. This means all of the incomings, outgoings, loan repayments and quarterly or yearly tax bills. Long term repercussions of loans and seasonal variations have to be considered and taken into consideration when it comes to the planning procedure.

One of the key causes of cash flow troubles, is down to late payments from clients. If invoices are paid in late, it can have a huge knock on effect of the whole business operation. Even with plenty of incoming sales, unless invoices are paid on time, businesses will struggle to stay afloat and maintain a healthy level of cash within the business.

Do the best you can with incomings and outgoings

To run a successful company, there needs to be constant planning. Updating the cash flow forecast is a huge part of that, it keeps owners and directors aware of where the business is and where it could end up being in the years to come. Staying in control of the businesses finances seem like an easy task, but the reality is very different.

How can you be efficient with incomings and outgoings?

  • Carry out assessments on clients, including credit checks.
  • Be assertive with clients, make sure to follow up on any clients who pay late.
  • Attempt to make it the business norm to collect payment deposits up front from clients
  • If there are regular suppliers to the business, keep up constant communication and develop strong relationships. If you are in trouble, this could help your negotiating ability if the business is late with payments
  • Make use of any outgoing repayment terms. If it helps to ease cashflow troubles by paying on the last day of a 30-day contract, then take advantage of it.
  • Try to sync up incomings and outgoings at the same time, it will enable all outgoings to be sorted at once, giving you a better idea of the businesses financial flexibility.

Carrying out credit checks on clients and seeing their score can give you a great indication as to the their reliability. Even with great credit scores it doesn’t necessarily guarantee that someone will pay on time, however, it gives you a much better indication. When it comes to chasing down clients who pay late, being overly aggressive doesn’t tend to work, a simple phone call or email will usually suffice.

Deposits can be a huge boost for a business, as it means getting cash into the business quicker. Having some money is better than none and deposits can give you a clearer idea of how much money you have and when, as it comes in straight away.

When it comes to outgoing payments, it’s important to be smart with payment dates and to be efficient. This means paying bills when you can and keeping enough in reserve for yearly or quarterly bills. Prioritise the bills you can pay and if you have the option to extend payments and wait for incoming payments, then strategically make these decisions.

The business is already struggling with cashflow, what should I do?

If things are already going wrong and cash flow is seriously suffering, it might seem practically impossible to get out of trouble. Thankfully, there are things which can be done, depending on the sort of reasons the business might be having issues.

For B2B businesses who are struggling with cash flow, invoice finance can be an excellent method of steadying the ship. If it’s late paying clients who are causing issues, invoice finance effectively allows a business to obtain an advance which is based upon the value of those invoices. A factoring company will lend you up to around 90% of the invoices value, after first assessing the quality of the invoices and the potential risks involved. If everything is ok, the factoring company will forward you the cash, before collecting it from the client, taking the money that they are owed along with their fees and then returning the change.

If it is issues with creditors and constantly having to make loan repayments. A pre-pack administration could be a good way to move forward, as it enables you to get settled and work out what parts of the business can be saved. It is a formal procedure, which can only be put into place if the business has genuine, viable future. it also avoids the prospect of having to completely close the company.

Bank loans are another solution, however, these are normally last case scenario. A bank would be hesitant to loan to a business which is having cash flow trouble, as it may suggest that the business simply doesn’t work. If a business could prove that the model is viable and they’ve simply had bad luck, then sometimes banks would be willing to loan.