Updated: 9th January 2020
Cash flow issues arise for a number of reasons, but if not tackled quickly can be the catalyst for financial decline, even in the most profitable companies. Some problems are difficult to foresee, such as the loss of a key customer or unexpectedly large bill, but in other cases a simple lack of useful management information is the cause.
So here are a few ideas to help you take back control of cash within your company, and address the issues before it’s too late.
The first step in overcoming financial decline is to seek professional advice, either from your accountant or a licensed insolvency practitioner (IP). Obtaining guidance from an IP gives you access to industry specific knowledge on insolvency, and the best options to overcome this financial situation.
Begbies Traynor is the UK’s largest professional services consultancy, and can provide the advice you need when facing financial difficulty. Our licensed IPs have vast technical knowledge, and commercial experience in all industries.
If you do not know how much cash you need in the coming months, you will not be able to deal with the inevitable fluctuations of business. It only takes a single creditor owed £750 to petition for your winding-up, and initiate the closure of your company.
Taking time to forecast your cash needs over the next few months, adjusting the details daily as necessary, provides a buffer should one or two of your own customers take longer to pay than anticipated.
Setting up an efficient invoicing and credit control system means you can encourage cash into the business on a regular basis. Working capital will be more readily available to meet payroll liabilities and other regular bills, and help you to manage on a day-to-day basis.
High street banks remain reluctant to offer business loans without directors providing a personal guarantee. The problem is that this places your own finances at risk should the company default.
A number of alternative financiers offer other options, however, which might be a better ‘fit’ for your business model:
Factoring and invoice discounting provide regular cash injections throughout the month. You use the value of your sales invoices to raise funds, and can even outsource your credit control function if chasing payment is an administrative burden.
If your company owns one or more valuable hard assets, you may be able to leverage their value via a ‘sale and lease-back’ arrangement with an asset-based lender. You retain full use of the asset, but also benefit from a cash lump sum that could repay your debt.
Stock or inventory finance allows you to use the value tied up in your stock to release cash on a regular basis. A regular list of inventory is provided to the financier, who provides access to working capital based on the value of your stock at the time.
HMRC Time to Pay allows you to repay arrears of tax and National Insurance over a pre-agreed period of time, usually between three and six months. This type of arrangement can be used for arrears of VAT, corporation tax, PAYE and NI contributions.
The main requirement is that your business is still viable, and you can genuinely afford to repay at the amount agreed. If not, and you default on a TTP, you could quickly face a winding-up petition from HMRC.
Again, the company must be viable in the long-run to qualify for a CVA. A Company Voluntary Arrangement places the company’s debts within a formal insolvency arrangement, resulting in a single affordable monthly repayment.
If creditors agree to the CVA proposal, all interest and charges are stopped, and the company receives protection from creditor legal action.
Company administration provides a moratorium period during which plans are made for the company’s future. This could involve a CVA, or a pre pack sale of the underlying business assets.
If all else fails or the company is not eligible for other insolvency routes, the best way forward may be a Creditors’ Voluntary Liquidation process, or CVL. It protects directors from allegations of wrongful trading, as creditor interests are prioritised.
Begbies Traynor can advise on your options in the face of cash flow pressures. We will establish your company’s financial position, and provide the professional guidance you need. Call one of our experts to arrange a free same-day consultation at one of over 70 offices nationwide.