Top 10 Tips for Dealing with Company Cash Flow Problems
If you are experiencing business cash flow problems, you will want to act quickly to redress the position. Whatever the reasons for your cash problems, here are ten tips to help you regain control.
Audit your business finances
Carry out a review of all outgoings and incoming revenue to see where savings or improvements can be made. A straightforward strategy of upselling complementary products or services alongside your main offering could have a significant effect on turnover.
Improve profit margins
Raising prices may not ordinarily be your action of choice, but carrying out an audit of your finances could reveal some room for manoeuvre. Negotiating better deals with suppliers will also help to improve profit margins.
Streamlining costs by regularly moving to the best tariffs and deals may seem simplistic, but significant savings can be made in this way. Providers will not want to lose your business, and the threat alone could be enough for them to offer a better deal that allows you to save money on a monthly basis.
Prioritise credit control
As a director, you need to know how much money is owed to the company at any given time. Prioritising the collection of monies owed will help to maintain a positive flow of cash through the business. This can be achieved by setting up a computerised system providing notification when a payment is late, and reducing the overall collection period.
Cash flow forecasts
The regular use of cash flow forecasts lets you know how much cash is going to be needed in the coming months. One-off requirements for cash that might otherwise derail a stable company can be recorded, allowing you to make arrangements for extra borrowing, or take other appropriate action. Cash flow forecasts are a very useful, but often underused tool, which forewarn company directors of potential trouble ahead. They need to be updated regularly, however, with the actual figures being compared to those forecast.
An organised accounting system
It is a legal requirement for companies in the UK to keep full and proper financial records, otherwise you may face accusations of unfit conduct as a company director. Computerised accounts that are accurate and up to date are vital to stay in control of cash flow – management reports that provide a daily update on your cash position could help you avoid a steady decline into insolvency.
Consider alternative funding options
A good example of an effective alternative is invoice factoring. This method of financing releases a cash lump sum back into the business, and can quickly improve your overall cash position. An additional benefit is that as your sales increase, so does your line of credit. The factoring company takes control of your sales ledger, making around 85% of the value of each invoice available to you immediately, with the remaining balance being paid once they have collected the money from your customer. You pay fees and charges to the factor for this facility.
Negotiate with creditors
Creditors are often open to negotiations if they see that you are serious about making your repayments in full. They may agree to extend your terms over a longer period of time to provide a little breathing space. Even HMRC offer extended payment terms to some companies. Their scheme is called a Time to Pay arrangement, or TTP, and is aimed at companies experiencing temporary cash flow problems. Begbies Traynor can negotiate with HMRC on your behalf to obtain extended payment terms.
Consult a licensed Insolvency Practitioner
A professional Insolvency Practitioner will gain an understanding of your company’s structure and operations, and advise on the best course of action in your particular circumstances. Many companies seek the advice of an Insolvency Practitioner when they become aware of cash flow problems, rather than waiting until it is too late to avoid insolvency. An experienced IP can be the catalyst for change, steering you away from insolvency and making the most of your trading position.
Company Voluntary Arrangement (CVA)
A Company Voluntary Arrangement would offer extended payment terms, and allow the company to continue trading as a going concern under the same directorship. Legal action would be halted as long as the terms of the CVA were adhered to, and interest on the amount owing would be frozen.
Begbies Traynor is the UK’s market leader in corporate recovery. We can provide professional advice and offer a free initial consultation.
Jonathan was a founding director of Cooper Williamson which was acquired by Begbies Traynor in October 2013.
Jonathan was involved in the inception and continued with the development of the "Real Business Rescue" website, which provides advice and assistance for the directors of limited companies which are experiencing various degrees of financial distress throughout the UK.
Jonathan is a member of the Insolvency Practitioners Association MIPA and is a Member of The Association of Business Recovery Professionals MABRP.