cash flow
Businesspeople on rollercoaster

By Carl Faulds

Even the best and most profitable businesses can encounter a sudden cash flow crisis. It’s how they deal with it that separates the winners from the losers. As a responsible entrepreneur, you naturally forecast your cash flow carefully, but even then an unexpected bill or late payment can disrupt your cash flow. Here’s five ways to stop a minor crisis turning into a full-scale emergency.

  1. Delay payments. If you’re paid late, your suppliers may have to be paid late as well. Obviously you need to be careful – fail to pay your telephone provider on time and there’s every chance your company could be cut off. However, you will probably have a number of suppliers who can be paid later than normal without any damage to your business or your commercial relationships.
  2. Offer discounts for quick payment. Even the tardiest of clients may become a quick payer when there’s a discount involved. If you need money and you need it now, consider offering a 5% or 10% discount for payment within a specified timescale, such as 48 hours.
  3. Negotiate new terms of business. Many of your suppliers will allow you to pay in arrears, with a typical term being 30 days. In addition to paying individual invoices late, you may be able to renegotiate your terms of business to give you breathing space each and every month. If your relationship is good enough, you might be able to convert 30 days’ grace into 45 days or even 60.
  4. Use your overdraft or business line of credit. Overdrafts and lines of credit can be expensive ways to borrow – but the flexibility they offer makes them invaluable. Being able to borrow and repay whenever you wish gives you a lifeline that you can grab whenever your cash flow turns negative. If you don’t already have an overdraft or line of credit, now’s the time to set it up – before you need it. Similarly, if you have a business credit card, this can be used in the same way (but keep an eye on the interest rate).
  5. Introduce invoice factoring or discounting. One way to put paid to cash flow problems once and for all is to talk to an alternative lender about invoice factoring or discounting. These innovative solutions allow you to borrow against the value of your invoices – typically up to 85% of the total – the instant you issue them, with repayment being made when your customers pay you. With factoring, the finance company takes over your debtor ledger and assigns experienced credit control professionals to secure early payment, whilst with invoice discounting you continue to manage your own credit control.

Carl Faulds is the managing director of Cashsolv, Carl offers advice and alternative finance support to overcome cash flow problems and identify possible underlying problems that can be addressed to ensure a positive future for your business.