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The dangers of overtrading

POSTED: 21st January 2015
IN: Guides
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There can be many causes to a sudden increase in demand, for example winning a large deal with a client or witnessing a seasonal spike, which may seem like great news at first.

But sometimes, an increase in demand can have a negative effect on the business by making it difficult to meet customers’ needs and trade effectively. When a company struggles to find the resources or funds required to service a client before they receive a payment, this is known as overtrading.

Overtrading is a common problem and it often hits start-ups, SMEs and rapidly expanding businesses the hardest. It’s a case of ‘too much of a good thing’.

In our current economic climate it can be difficult to turn down business, but while the promise of more money may sound beneficial, overtrading can have a series of negative effects on a company. Not only can it place a strain on finances and cause unnecessary stress, it can also damage the reputation of the business due to a drop in the quality of its output or an inability to fulfil an agreement.

Thankfully, there are ways of releasing the pressure and strengthening cash flow so that you can continue to trade effectively, even during times where demand is high. Invoice Finance and Asset Finance can help to inject cash into the business, giving you fast access to the money you need to meet the demands of your customers. Stresses and strains can be reduced, and you’ll be able to continue to offer a high quality service.

Here’s our guide to getting cash flowing and avoiding the dangers of overtrading:

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