Cashflow problems are an all too common occurrence that almost every business will be faced with at one time or another. Cashflow problems will arise for all manner of reasons, from excessive capital and high levels of personal drawings, to late payments, poor credit and debtor management, and declining sales.
Whatever the reason for the poor cashflow problems in your business the consequences can be severe when frustrated creditors are not paid. Actions such as statutory demands, a county court judgement and even a winding up petition can cripple your company. However all is not lost, there are a number of weapons in your armoury to prevent the situation from escalating to avoid a company insolvency. In this post, we’ll take a look at some of the best methods to manage company cashflow problems.
What is Poor Cash Flow?
Poor cash flow can be defined as the state of having less money entering the business than required by the outgoing needs. In its more serious forms it can mean that a profitable business becomes insolvent, simply because it cannot meet its liabilities when they fall due. As such, poor cash flow is a serious concern which needs to be addressed if the business is to be viable over the long term.
How to Improve Poor Cash Flow Problems in a Business?
Improve Debtor Control
The recent economic turbulence has made it arguably more important to improve the collections process than ever before. Effective credit control tools cannot only increase cashflow and speed up payments, but also improve customer service and reduce the cost of collection.
Understanding the role everyone has to play in the prompt collection of company debts and integrating the credit control process into core sales and marketing functions can help to increase the number of prompt payers.
Cut your Costs to Improve the Working Capital Cycle
The first step is to carefully assess your poor cashflow situation to see how much money you need to save. There are a great many ways to reduce a business’ costs. Carrying too much stock is a common cause of cashflow problems, so reduce your stock levels to free up the money you need to grow your business.
Taking account of early payment discounts offered by creditors will also help to reduce the company’s costs. Reducing your requirement for office space by allowing employees to work from home is another effective method of improving your cashflow. You should also cut overtime and reduce bonuses wherever possible.
Charge Interest on Late Payments
If late payments are your businesses Achilles’ heel, you should obtain compensation for your business for the time and effort required to chase debtors who are reluctant to pay. The Late Payment of Commercial Debts Act 1998 entitles you to charge 8 percent interest above the Bank of England’s base rate on outstanding sums after 30 days.
Invest in your Website
Is your company website working for you? You cannot simply create a website and expect it to bring in new enquiries. Marketing your business online is an ongoing job. If you’re paying a digital marketing agency to help things along, how much traffic are they driving to your site? And how much of that traffic actually converts? It might be time for a change of provider…
Monitor Your Marketing Spend
In a cash flow crisis, many company owners and directors make the fatal mistake of slashing their marketing budgets. Marketing has a hugely important part to play in generating new customers. Even if your business is at capacity, you still need to generate enquiries from potentially better paying customers. Simply waiting for the phone to ring without actively marketing your business is a death march for struggling companies.
Try a Spot of Pay-per-click
If you are yet to set up a pay-per-click (PPC) campaign, Google Adwords typically offers new customers £30-£50 to spend on advertising their business. There are hundreds of beginner’s guides online, just do a search for ‘Beginner’s guide to PPC’ or something similar to see whether you can open a new revenue stream for your business.
Talk to your Creditors
Keeping your creditors informed of the situation and paying small but regular sums of money can play a crucial part in riding out a cashflow storm. Don’t act and they may decide to take legal action, which could spell disaster for your company. If you’re struggling to pay a tax bill, contact HMRC in writing and ask for a ‘time to pay’ plan – it might just save your business.
Get advice from the experts
If you’re still struggling with cashflow pressures, you should seek expert assistance before the situation can escalate. Cashflow problems are not necessarily a sign that your business is unviable; on the contrary, in some cases high order levels can bring their own set of cashflow issues. Either way, we can advise on the best course of action for your business, so contact Company Debt today for a no-obligation discussion of your circumstances.
Written by: Mike Smith