How to build a cash flow toolkit for your business

POSTED: 16th July 2014
IN: Guides

For a new enterprise trying to find its feet in the market, a sudden influx in popularity would usually seem like a Godsend. Every business owner wants to see their products sold and their services praised, but sometimes a stark rise in popularity can actually cause problems.

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There may be occasions where the demand for your product or service is there, but you can’t cater for the increase in interest due to a lack of available funds. This can prove particularly stressful if you have customers pestering you or complaining.

This is known as overtrading and can result in a conflict between the amount of cash available and the financial demands of doing business.

The warning signs are often there and if you can spot them early on, you can get a head start and prevent the problems from escalating. Perhaps you’re suffering from the following:

  • An increase in late payments from clients
  • You’re starting to pay your own suppliers late
  • It’s becoming difficult to maintain the quality of your product or service
  • Your accounts are looking unhealthy

There are several ways that you can rescue your business and give it a new lease of life if you are feeling a little overwhelmed with financial problems:

Plan and budget

Prevention is often better than cure and plenty of planning and budgeting can go a long way to prevent problems arising in the first place.

It is important to set some time aside each month to evaluate how well your accounts are doing. You also need to assess where exactly your money is being spent so that you can work to make savings wherever possible.

You can’t see into the future to determine exactly how you will be doing in a year’s time, but you can use existing knowledge and growth trends to predict how likely you are to progress over the coming months. This is why a profit and loss statement can be an extremely beneficial accomplice to have in your cash flow toolkit.

It may sound obvious, but the trick is to keep a log of all money coming in and all money going out. If at any point your outgoings are greater than what’s coming in, then you need to find ways to curb your spending and cut back.

  • Keep an eye on your spending

Make sure that you pay a lot of attention to the amount that you spend. Not only will you have to pay things such as wages, but you may also need equipment and materials. How often do these things need replacing?

Keep a record of everything that you spend by collecting receipts and invoices together. These may prove really helpful when analysing your spending and working towards a solution if you have been throwing money away unnecessarily.

Don’t forget to pay yourself. It’s not unheard of for small business owners to completely disregard their own pay so that everything can be put into the business.

  • Save for a rainy day

The amount of money that you have coming in each month will of course vary but don’t get too excited when you have a good month. There may be certain months where business is doing better than usual. This may be seasonal or perhaps everyone has paid you on time. Prompt payments can make your life much easier by encouraging a large wave of cash your way, but don’t let yourself get carried away, as there may be other months where you are in desperate need of this money.

Also, bear in mind that even reliable clients who always pay on time can still let you down. They might have a month where their own cash flow is lagging a little and therefore may pay you late. There’s also a possibility that clients may leave you, sometimes leaving you out of pocket and looking for a new source of income.

  • Allow room for growth

There may be occasions where you’re offered a great opportunity that you’re reluctant to pass up. If you haven’t got enough money available, this can be extremely frustrating and could result in you missing a once-in-a-lifetime opportunity for your business. This is why it’s important to plan ahead and save as much as you can. So not only should you save for those months where you may fall victim to late payments, you should
also put a strategy into place for you to save for more positive surprises.

Regular housekeeping can help to prevent problems from arising, but sometimes no matter how much you plan and budget, a sudden surge in popularity or late paying clients can have a really negative affect on your cash flow.

Late payers are becoming a real problem for businesses across the UK. The national late
payment debt stood at £30.2bn in April 2013 and these late payments can often cause a domino effect between small to medium sized enterprises. Banks are keen to help by injecting funds into businesses in trouble.

There may be occasions where you can benefit from a helping hand to give your business that extra boost needed to keep your customers happy.

There are many financial options available for businesses needing assistance, such as factoring and invoice finance.

Invoice factoring

If you have been plagued by late payments and need fast access to funds that your customers owe you, then invoice factoring may be an option for you.

Factoring gives you the money that you are owed and relieves you of the hassle that comes with chasing clients for payments. So not only will you get your money quickly, you’ll also have extra time on your hands that you usually would spend chasing people for money.

When an invoice is raised, the bank will buy the debt owed to you and will give you the money instantly. A financier will manage your sales ledger and collect the money on your behalf. They will make a percentage of the cost available and will collect the money in full from your customer.

Financiers will also credit check potential customers so if you don’t have an in-house credit control function in place, this may prove useful. Your financier can investigate new clients’ payment history so that they can evaluate how reliable they are.

However, your customers will be aware that you’re using invoice finance as they will deal with your financier rather than yourself.

Invoice discounting

Invoice discounting is another type of invoice finance that can help improve any money woes that you have within your business. You’ll gain fast access to the money that you are owed, which can assist in keeping cash flowing steadily.

Unlike factoring, the financier won’t manage your sale ledger for you or conduct credit control,
but they’ll still buy the invoice from you.

The benefit of invoice discounting is that customers won’t know that you are using invoice finance as you will deal with them as usual, and will conduct credit control yourself. This can be particularly beneficial if you have a close relationship with your customers or are reluctant to let them know that you are receiving support.

Invoice finance options can give your enterprise an added boost and encourage cash to flow smoothly through your business. For more information about these options, contact our team of experts at Aldermore who can discuss your situation with you and help you to find the right solution.


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