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How to move forward when cash flow becomes a problem

Written by  Jul 03, 2020

However careful a business might be, at some point a cash flow problem can arise, and become a major problem.

In fact, cash flow is the reason why many UK businesses go under.

It’s imperative that every business plans ahead and is prepared for all eventualities.

Without appropriate planning, you cannot identify potential risks and put measures in place to mitigate them.

One of the major challenges is getting the balancing act right between getting client invoices out and getting them paid, whilst also making sure your suppliers stay happy. In other words, juggling the accounts receivable with the accounts payable. In an ideal world, you want your clients to pay you more quickly than you need to pay your suppliers. Easier said than done.

So what can a business do to get through if cash flow becomes an issue? Here are some practical tips to help steer a business forward.

1. Evaluate your credit options

Put in place a flexible line of credit that enables your business quick access to funds should you find yourself with a cash flow problem. Ideally, it’s best to get this set up when the business finances look good, as it will be far easier to get approval for funding.

A company credit card is one way forward, or you could consider an emergency loan or a short-term business loan. A loan may require you to secure it with your business assets, but it can give you access to cash quickly, and help overcome a cash flow imbalance. Although be careful you aren’t just pushing the problem further down the road.

If you don’t need access to a large amount of cash, an arranged overdraft facility could be an alternative option – you won’t have to factor in interest charges, and it can act as a buffer for when the business needs it.

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2. Do an audit

Undertaking a regular audit and review of the business is essential. If you haven’t done one recently, get one done now. Ideally, invest in a good accountant and get them to provide you with regular financial statements. This is how you can keep your eye on money coming in, versus money going out, and enables you to establish where you might be able to make savings or improvements to cut down on business expenditure.

Generate a set of cashflow forecasts so you can see how much money your business is likely to turnover in the coming months.

Boost your revenue stream by making a few adjustments. Perhaps add a new product or service or consider relocation to reduce rent. Any changes you make right now need careful consideration, but some could prove to be quite lucrative.

cloudAlso see: Good reasons to move your payroll to the cloud

3. Speed up your cash flow

Customers who run up bad debts or make late payments can badly damage a business’s cash flow. Review all your outstanding payments and chase all debts. To encourage speedy settlement, introduce late payment interest charges and offer discount incentives for early settlements.

Don’t delay sending out invoices. They should be sent as soon as the order or service has been fulfilled. Send them by email, it’s quicker than post, asking for confirmation of receipt. Show your customers that you have a firm payment policy and mitigate the risk of any payment issues from the start.

4. Sell unneeded assets

Conduct an inventory of all your business assets, and sell those that are not essential. Although it’s not an instant fix to get your hands on cash, looking at your assets with a critical eye will identify where you might have overspent. If you don’t want to sell, consider leasing out a business asset to bring in additional income.

5. Negotiate with your suppliers

If you’re on good terms with your suppliers, you might be able to negotiate more favourable terms with them and be given more time to pay. After all, they probably don’t want to lose your custom, and this would allow you to hold onto some cash for longer. Think carefully about who you pay if it becomes clear you can’t pay all your debtors, as failed payments could create all sorts of legal issues you could do without.

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6. Seek professional advice

If you are facing a serious cash flow crisis, don’t ignore it. It won’t go away without taking some course of action. Ignoring it will damage the trust you have with your creditors. Get to grips with the full extent of the problem and take action and your business is more likely to survive.

If you are having difficulty making payments, your business could become insolvent. Don't be afraid to seek professional advice.


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Karen Turner

A very experienced freelance IT journalist who now prefers to work from home and has such a broad range of knowledge accrued over the years, we would not cope without her influence and ideas.

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