Maintaining a positive cash flow in a business is no easy feat. However, it’s important to ensure that you’re on top of your cash flow so that your business can run smoothly.
Managing your cash flow not only ensures that you can pay creditors, it also means that you can manage your money and budget so that operational costs can be met as well as paying your employees on time. Cash flow management simply makes good business sense.
Despite this, it’s not always easy to manage your cash when you’re a small or growing business. In fact, there are some common problems that companies face when it comes to managing cash flow. Luckily, with every issue comes a solution, so here we look into some common cash flow problems and how to overcome them.
1. Not meeting payment dates
When you are struggling with your cash flow, meeting your bill or supplier payments can be tricky. However, if you can’t meet these payments there can be repercussions. Interest can hike up the repayments or you can lose faith in suppliers which means there can be a damaging impact moving forward.
Cash flow solution 1
If you can’t make your payments, one of the best things you can do is to call up those you owe money to and explain the situation. If you have good relationships built up or haven’t had any issues before, then you can negotiate a payment plan that suits you both with no issues. If you don’t explain the situation, those you owe money to will be less sympathetic and it can cause you problems moving forward. Alternatively, you can arrange for experts in the field to set up a creditor cash plan on your behalf.
If you’re in a temporary lull, renegotiating payment plans can be the best way forward. It also gives you time to re-look at your cash flow and find ways to make sure you meet payments moving forward.
2. Business growth
Whilst business growth can be a good thing, it can also reap havoc on your cash flow. When orders are coming in hard and fast, you may need to quickly get more resources to fulfil them. This can mean you’re spending too much money compared to your original cash flow forecast.
Cash flow solution 2
When your business is growing there are ways to get funding to support extra resources to bridge the gap. In fact, it can be a lot easier to get extra finance when your business is going well. Bank loans can be a lengthy process and may not help your cash flow in the immediate term. Therefore, looking at different methods of funding such as short-term finance or invoice finance can be a way to help cover your cash flow issues as your business grows. Short term loans often come with high interest rates but are a really good cash flow solution in the interim. Similarly, invoice finance releases cash up to 90% of the invoice amount so that you can bridge the gap between payments.
3. New equipment required
As a business expands and grows, there may be a need for investment in additional equipment. Sometimes, growth is unexpected and so to meet demand new machinery may be required earlier than anticipated. This can take huge amounts out of your cash flow and can cause issues.
Cash flow solution 3
Instead of buying new machinery outright, businesses can look at leasing equipment or buying equipment on finance. It allows companies to hire an asset for a fixed period and then have the option to buy it at the end of the term. Although interest rates will make the cost higher, it allows for the business to get the required apparatus immediately and pay it off over time.
In addition to this, short term loans can also help to buy new equipment. It may be worth comparing interest rates for each to see how you can get a better deal.
4. Late payments
Sometimes your cash flow issues aren’t always your fault as a business. Late payments from customers can be really tough to manage and detrimental to your cash flow. When money doesn’t come in as you anticipate, it can really affect your financial situation.
Cash flow solution 4
There are a few ways you can solve this problem as a business. One is to provide clients with an incentive to pay on time. This can be offering a slight discount on repayments or rewards after paying on time over a longer period. In addition to this, you can try invoice factoring or outsourcing late payments to a specialist debt collection agency. By introducing policies and setting out your terms and conditions, late payments can be legally managed so that it doesn’t impact your accounts.
When it comes to your cash flow, it’s important that you manage it effectively, not just once a year, but on an ongoing basis. Forecasting and budgeting is important but staying on top of your cash flow can help to identify problems sooner rather than later. Cash flow solutions are always possible so keep managing your finance and look for ways to keep your business growing.