Any director that has been in business for long enough will tell you that cash flow management is vitally important to ensure business debt is kept under control. So when cash is king who can help with the important problem of cash flow woes?
The key here, and a general theme through the many other articles I have written is to seek professional advice on your cash flow management as early as you can. Trying to handle these things alone is likely to simply make matters worse; getting the proper business debt advice will go a long way towards having a long and prosperous future.
Un-managed cash flow can spiral out of control
Over the years I have seen many companies that have traded profitably for a long time, only for there to be one cash flow management issue that leaves the directors facing pressure from creditors and the worrying then starts. This leaves directors in what feels like a very uncomfortable position, asking themselves if there is no cash how can I pay for my supplies and my employees?
Without talking things over, suddenly the director sees a future where he has nothing left but the clothes he is stood up in. The important thing to remember is that this is not the first time and certainly will not be the last time that a company faces business finance pressures. Working out what has caused them is key to finding the answer.
Possible causes of cash flow management issues
Tightening cash flow can be the result of a number of factors. It could be the failure of a major customer or a crucial piece of equipment breaking down, which could result in the inflow of cash drying up, or perhaps it is an issue that has been growing over time. It may be that your customers are failing to pay you on time. In which case better credit control, starting with establishing acceptable trading terms, may be the answer.
Often directors are concerned that if they chase customers too hard for payment, they may get the one payment in that they are pursuing, but they lose the future business from the customer. This really does not need to be the case, customers know they need to pay and provided it is done in the right way it can in fact improve the relationship and ensure that payments come in on time in the future.
These problem debtors could be passed to a legal debt collection service (Debtcol being an example) who can pursue your cash flow management in a firm but sympathetic way. With years of experience they can focus on what they are good at (debt collection) and leave you to what you are good at (running your business).
Alternative cash flow management solutions
An alternative to this could be that invoice discounting or factoring is appropriate to give the company ongoing cash flow support. Depending on the type of agreement set up, the company could also benefit from someone taking away the day to day hassle of debt collection and instead, just see the regular income as work is completed and invoices are raised.
What happens though if there is simply not enough time to wait for the debt to come in. If it really is a matter that simply cannot wait then it may be a case that an emergency loan is needed. This is only a very short term solution and what is important is to resolve the underlying issue, as well as dealing with the immediate cash flow management issue.
More often, what the company needs is some breathing space from creditors. A lot of the time the creditor who is chasing is HMRC. When cash is tight, we often see HMRC debts starting to mount and it is unfortunately quite easy to let the debt get to an amount the company can no longer afford to manage alone. If this is the case then it may be time to consider a time to pay arrangement with HMRC. This cash flow management solution gives the company a bit of time to get back on track, whilst paying HMRC over a period of up to twelve months.
If it is trade creditors that are applying the pressure, then it could be that time is simply needed to pay them off using a cashplan, or a CVA could be used to write off that element of the debts that the company can not afford to pay.
Whatever the issue there is a cash flow management solution to be found
Whatever the issue, we believe that there is a cash flow management solution we will be able to find. The main thing is to ask for help and remember that getting over the cash flow woes will enable you to focus on the future viability of the company and its long term success.
For further information Download our Guidance Paper on 'How to deal with a cash flow emergency’, or view the following relevant pages:
- Symptoms of cash flow problems
- Cash flow solutions
- Cash flow funding
- Is your business suffering from cash flow difficulties?
- Cash flow problem? Have you considered invoice finance?
- 15 tips on how to improve cash flow for business
- How to improve cash flow for business
- Does the success or failure of your business depend on cash flow?
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