Issues With Cash Flow? Here’s How to Solve Them
Avoiding a cash-flow crisis
This post is by Giles Ellis, an experienced business coach and Director at GECA Chartered Accountants. GECA offer Business Planning and other Business Advisory Services.
10 ways to prevent cash flow problems in your business
Your business doesn’t have to be tiny or struggling to experience cash-flow problems – in fact, periods of rapid growth can often trigger issues with cash liquidity. Left unchecked, cash-flow issues can slow growth and even take your business down.
If you’re having problems with cash flow now – or if you can see them on the horizon – there’s no one way to get your company back in balance. You need to identify what’s causing your cash-flow issues and try a few different strategies to get things back on track.
Here are 10 ways to get started:
1: Cost-cutting measures
Cutting costs is the most obvious way to boost cash flow in your business. And unlike raising revenue, it can have an immediate effect on your income flow. Where to cut costs depends on your business – you might be able to cut unnecessary expenses like business travel or company cars, put a freeze on overtime, or even reduce staff numbers to save on salaries.
2: Raising prices
Raising your prices is another simple way to increase cash flow – and you don’t need to implement a major price hike to make a difference. Even modest price increases can have a significant impact on your profits. If you’re nervous about losing customers through a price rise, consider offering deals on bundled products or services to offset the increases.
3: Check new customers
New customers are great for business – but only if they actually pay their invoices. Avoid issues and ensure cash flow by carrying out credit checks on all new clients. You should get a notification if the business or individual is in the habit of making late payments or defaulting on bills.
4: Tighten payment terms
You don’t have to give your clients months to pay their bills – in fact, a long payment term can be a major factor in cash-flow problems. If your payment term is set at 60 or 90 days, consider cutting it to 30 days to speed up your cash cycle.
5: Reward prompt payment
Prompt payment of invoices keeps cash flowing, so it should be incentivised. Offer a small discount for early payment, to encourage clients to get their invoices in as soon as possible. However, you may not want to offer this option on a permanent basis, as it could impact on your profit margin.
6: Invoice quickly, follow up regularly
You can’t demand prompt payment if you take months to issue an invoice. Keep things rolling by sending invoices as soon as the work is completed or the product is sent, and make sure to follow up on late payments. Every unpaid or late invoice is costing you money in goods and services – and damaging your cash flow.
7: Lease, don’t buy
Buying furniture, IT equipment, cars, property, and anything else you need to run your business is a huge expense. If you’re considering a new purchase, think about leasing instead – that way, you’re only making a small payment every month, which should help improve cash flow. Cancelling a lease is generally easier than on-selling if you need to downsize.
8: Think about invoice financing
A large, outstanding invoice can put a major dent in your cash flow. That’s where invoice financing comes in – some lenders offer quick, short-term loans based on outstanding invoices – ideal if you need instant access to cash. You’ll get up to 85% of the value of the invoice within 24 hours, then get the final 15% once your customer pays the invoice.
9: Look into loans
Short-term loans can help you bridge a cash-flow gap – whether from your usual bank, a non-bank lender, or alternative finance sources like peer-to-peer lending. You could also think about looking for longer-term funding from partners or investors if you’re often running into cash-flow problems.
10: Get help from the experts
Many cash-flow issues can be solved with quick-fix solutions, but if you’re finding yourself short more often than not, it might be time to get expert advice. Working with a finance expert can give you an outside perspective and help you find new ways to generate cash for your business.
You could bring in a business accountant or part-time CFO to help you sort your finances long-term – creating financial forecasts, reviewing your expenses and income, and helping you find innovative ways to boost your cash flow. They can also help with decisions around spending, hiring, and pricing your product or service. It’s about getting an objective outside view of your business – with years of experience behind it.
Read one of our other blogs for further information on how to combat cash flow problems.
