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Cash Flow Problems

Cash flow is undeniably the lifeblood of a successful business. While the value of your company’s assets, your balance sheet and annual profit performance are all vital measures of your business’ health, cash flow determines your ability to pay debts on time, to invest and to grow.

Without sufficient cash available to pay the ongoing operating costs of the business, such as bills, rent, suppliers' invoices, tax etc., your company could slip into insolvency and be forced to close.

A cash flow problem is when business debts outweigh the money that is coming in. There can be a number of reasons why a business is experiencing cash flow problems. If your business is experiencing cash flow problems, we can assess your business finances, company structure and processes to determine the cause and available solutions to your cash flow problems. Solving cash flow problems early on is vital, as finance troubles can quickly spiral and force your business into insolvency. So contact us ASAP via telephone, email or online live chat for expert advice and guidance.

The Causes of Business Cash Flow Problems

There are a range of factors that can cause cash flow problems within a business:

Generous payment terms for customers
The time between cash going out and coming into your business needs to be well-managed in order to avoid cash flow problems which can lead to insolvency.

Cash flow problems can soon materialise if you offer generous payment terms to your customers, without establishing an effective credit management policy. Giving your customers large amounts of credit, combined with a passive approach to collecting your own debts, means that cash coming into the business is delayed. Meanwhile, your own bills still need to be paid.

By credit-checking new and existing customers, closely managing customer credit accounts and acting swiftly to recover outstanding debts, you can reduce the likelihood of late payers affecting your own company’s cash flow.

Loss of a key customer
Losing a large customer can be a huge problem for businesses with a small customer base, or businesses that rely on one or two key accounts for most of their sales. If one of your key customers suffers financial difficulty or goes out of business, a considerable proportion of your own cash inflow disappears.

Therefore, rather than operating with a one or two large contracts, it is best to seek out new business with a range of new customers. This will spread the risk and reduce the impact that another company’s insolvency has on your own business.

Management not having their eye on the company finances
Directors must know and understand the financial position of their company at all times. Without easy access to the figures, directors won’t be aware immediately if their company is struggling with cash flow problems.

With the use of finance information software and excellent communication between finance departments / accountants and the company directors, directors will have access to vital information that allows them to project future cash needs. A cash flow analysis, as well as detailed sales and cash flow reports, will also allow directors to act quickly in order to avert a cash flow problems.

Solutions to Business Cash Flow Problems
If your company is struggling with cash flow problems, there are many simply solutions which can help to improve company finances, prevent the company from going into insolvency, and allow the company to grow and expand in the future.

  • Reduce credit terms for your customers so that you can collect cash sooner.
  • Establish a credit control procedure within your company that is followed by all relevant staff. This involves credit checking customers before offering credit, allowing only realistic levels of credit to customers, and ensuring that you are proactive in collecting money that is owed to your company.
  • Charge interest on late invoice payments.
  • Request longer payment terms from your own suppliers, so the gap between cash inflow and outflow is reduced.
  • Compare rates from various utilities companies, suppliers, company vehicle providers etc. Shop around to find cheaper rates for your business.
  • Look to gain new customers, increase sales and profitability.
  • Manage stock levels so that you aren't stuck with excessive amounts of inventory.
  • Consider invoice factoring and invoice discounting to provide a more immediate cash injection.
  • Consider other forms of business finance, such as asset finance, to extract the value of business assets in the form of cash.

More Advice & Guidance on Business Cash Flow Problems

If your business is experiencing cash flow problems, it is best to get expert advice from an insolvency practitioner straight away. As experienced insolvency practitioners, we can offer advice and guidance on a range of business finance options and other solutions to cash flow problems.

If you do not take action to improve cash flow problems, the situation can worsen and result in business insolvency. You can contact us at any time via telephone, email or online live chat to get the help and assistance that you need.

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