How to Overcome Cash Flow Issues

Good cash flow management is critical for any business’s success, regardless of size or industry. It’s a harsh reality that even the most established and profitable companies can crumble if they don’t have the cash available when they need it most.

What is Cash Flow?

Cash flow is the amount of money coming in and going out of a business. To have a positive cash flow, you need to generate more money coming into the business than you have going out.

Sounds simple, right? Wrong!

The Office of National Statistics has found that up to 90% of business failures are caused by cash flow problems, highlighting the importance of proactive cash flow management.

We’ve put together a guide on how you can effectively manage your cash flow.

Step One – Undertake An Audit

Shockingly, many businesses operate without a clear understanding of their true financial health. Too many business owners get caught up in the day-to-day operations of running the business and neglect to monitor their finances closely.

Take the time to conduct a thorough audit of your business’s finances. This involves meticulously tracking all income and expenses; analysing your financial statements to identify areas of concern, and attempting to understand your current cash flow position.

By creating a clear picture of your financial situation, you can more accurately assess the severity of any cash flow issues and develop a plan to address them.

Step Two – Challenge Late Payments

Late payments can severely impact cash flow, especially for small and medium-sized enterprises (SMEs) as it can be the difference between continuing to trade and shutting up shop.

So, what can you do to protect your business from late payments?

  • Conduct credit checks: Conduct checks on new customers before commencing any work to minimise the risk of non-payment. If any issues are raised during this, you could request that the customer pay for your goods and/or service in advance.
  • Check information: Issue invoices immediately after completing work, ensuring all necessary information is included and accurate. If payment dates are missed, follow up with your customers and push for them to honour the original agreement.
  • Be aware of payment cycles: Understanding your customer’s payment process is beneficial, as some businesses have set payment frequencies. If you send an invoice that doesn’t fit with their payment cycle, you run the risk of always receiving delayed payments – so timing is key.
  • Escalate if necessary: If payment is late, don’t be afraid to escalate the matter. Your escalation process should clearly state what will happen should they fail to pay and can include things like late payment fees, interest, and at what point you would seek to pass the account over for debt collection.

Step Three – Seek Professional Advice

If you are struggling to collect outstanding debts, and it is severely impacting your cash flow as a result, consult a debt recovery service, like My Debt Recovery. We have the expertise and resources to pursue outstanding payments effectively and efficiently.

Please get in touch by calling 0800 009 6106 or emailing hello@mydebtrecovery.co.uk to see how we can help you.

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