5 signs you need to concentrate on cash flow
All good business owners and decision makers know the importance of cash flow.
But, with so many tasks to think about, it doesn’t always make the top of the priority list.
So how do you know when your cash flow deserves more of your attention?
Here are five signs that you need to concentrate on your cash flow.
1. You don’t know how much money you have going in or out
When you’re working around the clock trying to generate new business, manage your teams and bring new ideas to life, it can be easy to take your eye off what’s actually coming in and going out of the business.
But when it comes to cash flow, ignorance is most definitely not bliss, and when challenges do present themselves burying your head in the sand will only make any issues worse.
Ask yourself if you know how strong your cash flow is right now, and whether there is any upcoming expenditure planned that may impact it.
If you’re not sure, take the time to have a look at your cash flow forecasts, assess your performance and understand what’s behind it.
By knowing what is coming in and out you will be able to spot any upcoming cash flow shortages.
Using this information you can then take the steps to protect your business.
2. You regularly pay bills late
The uncertainty surrounding the economy at present and the challenges this presents continues to place a great deal of pressure on businesses, with late payment a widespread consequence of this.
Yet, with careful management, it is possible to avoid having to pay bills late or at least negate the adverse impact this is having on suppliers.
If you find yourself regularly missing payment deadlines because of a lack of working capital, this should be a prompt to focus on your cash flow.
If this exercise indicates you might not be able to meet an upcoming payment, first and foremost you could request an extension from a supplier or ask for earlier payment from a customer.
You could also use the opportunity to review your key suppliers and see if you can get better prices elsewhere.
However, it may be that the restricted cash flow is a sign of an underlying issue.
This is where it could be useful to explore a funding facility that specifically targets improving cash flow, using the capital this generates to meet your day-to-day commitments and even reinvest into growing your business.
3. Your customers regularly miss payment deadlines
Late payment is one of the leading causes of cash flow difficulties.
So, if your customers are paying slower than they used to, paying late, making partial payments or not paying at all it’s vital that you take action now before your cash flow is impacted.
First, implement an efficient credit management strategy from the moment an order is placed to when the customer makes payment.
The exact strategies used will vary between businesses but it’s good practice to start with account opening forms and credit checks to ensure credit is only offered to those who will pay.
And then, when dealing with late payment, use all the tools available to you, including charging late payment interest or external support.
Unfortunately, not all businesses have the time or resources available to dedicate to an effective procedure. In these instances it can be beneficial to outsource the task to a debt collection agency, who will use their expertise to recover payment quickly and give you back the time to focus on growth.
4. You don’t have a cash flow cushion
When your cash flow is currently working well for your business it may seem unnecessary to plan ahead for the worst.
But even the most financially prepared businesses can find their cash flow struggles when suddenly presented with a late payment or unexpected expense.
Therefore, it’s vital that you always have a cash flow cushion in place to absorb some of the impact if you find yourself strapped for cash.
To achieve this it’s wise to prepare in advance by putting money aside and ensuring that you have adequate insurances to protect your business.
You should also consider alternative sources of finance before you even need it.
This ensures that you have the right information available at all times so you can make quick decisions to protect your cash flow as and when you need to.
5. You have a maxed-out credit card or overdraft
Many businesses use credit cards or overdrafts.
But, whilst these funding options can provide a good short-term solution, over the longer term they can cause more harm than good.
Typically, these sources of funding come with hefty fees and charges and relying on them to support your business can actually push your business deeper into debt.
Therefore, it’s essential that you regularly revisit your funding to ensure that your facility is the most suitable option for your needs.
Sourcing a new funding facility could help you to pay off your balance, save money on fees and support your business going forward.
However, with so many funding products and providers to choose from, finding the right one for your business can be a challenge.
Fortunately, commercial finance brokers specialise in this area and can help your business through the process.
They will take the time to get to know your business and its ambitions and then use their knowledge and expertise to highlight the most suitable solutions for your requirements.
If any of these signs sound familiar we could help find you the solution. As a trusted commercial finance broker we introduce the most suitable cash flow solutions for your requirements. Contact us on 0800 9774833 or request a call back to see what we could do for your business.
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