With any business, cash flow is key, and delays on the part of your customers in paying their invoices can lead to cash flow problems. Building rent still needs to be paid, suppliers need their invoices paid before they will send more product, and your staff need their wages. Cash flow problems are not a small issue, but can be the death of even very successful companies. Even with the assurances that debts will be made good, if your own creditors are unwilling to extend you short term credit then you will be unable to continue trading.
In this case a specialist business recovery team may be able to help you, in a multitude of ways. If the cash flow problem is a single one off instance caused by a major invoice being late on payment or a major unexpected cost being incurred then they a business recovery company may be able to offer the short term credit to bridge the gap until your cash flow has re-established.
If the cash flow problem is more long term then a business recovery specialist will be able to take an objective look at your incomings and outgoings, and all of your customers, and identify where the problem is and what fix might be applied.
There can be many causes of long term cash flow problems, but most are usually caused by a disconnect between the scheduling of the outgoings against incomings, and reviewing that schedule can be an easy fix for an otherwise profitable business.
The first place to look is the dates of payment for your fixed overheads. With these consider if there are multiple suppliers being paid on the same dates, and if any of these payment dates can be changed to allow a smoother payment schedule. Consider also your business model – do you show a steady income through the month, or do you have a smaller number of high value sales with income concentrated at particular points. In the first case, try to spread your overhead payments to be even, but in the second consider a loan to allow a larger operational buffer to be in place, and if your payments are regular then consider asking your suppliers to change their payment terms to more closely match yours.
Businesses with high value sales are the most vulnerable to cash flow problems. This can impact on business models with a single invoice point, for example a quarterly magazine which invoices advertisers on the production of the latest issue, for whom a delayed payment can represent a major issue. It also impacts on high value sales to an even greater extent, such as artists, for whom there is no regular invoice schedule and a lull in sales represents not only a build up of stock but a delay in income with no matching delay in overheads or supplier costs. For this business model the only business recovery plans are holding a large enough buffer of operating costs to cover a lull, or having a good line of credit already agreed.
Mark Jefferson is a seasoned commercial finance professional with over 25 years’ experience in financial services, much of that spent providing funding to SMEs. Mark has worked with many other firms in a similar situation to yours. Call Mark on 0800 157 7355 and you can also follow him on Google+
Every month Business Recovery help businesses improve their cash flow. Request a quote to find out how much extra cash you could raise.