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How to manage a short-term cash flow gap

31/10/2019

There are a number of reasons why a business might suddenly experience a short-term cash flow gap.

Whether it’s the result of an unexpected bill, a late payment or increasing costs it’s important to bridge the gap as soon as possible to prevent it from becoming a bigger problem for your business.

Here are six simple steps you can take to manage a short-term cash flow gap.

1. Know your numbers

The sooner you spot a cash flow gap approaching the easier it will be to manage. So, always keep an eye on your cash flow to make sure that there are no surprises coming up. To help you do just that here are some tips on how to spot a cash flow shortage before it happens

2. Act fast

As soon as you notice a gap in your cash flow it’s important to act quickly to get a solution in place. Failure to do so could lead to you missing payments which will incur additional charges and interest that can damage your credit rating and derail your success.

3. Raise funding

Perhaps the simplest option is to raise enough funding to cover the cash flow gap. Some businesses will turn to credit cards or a business overdraft in these situations but there are a number of finance options available which are designed specifically to improve your cash flow and could be more suitable. Here are five funding options which you might want to consider

4. Reduce spending

Although obvious and sometimes challenging, another quick fix is to find a way to reduce your spending. Take a look at your upcoming outgoings. Is there anything which can be delayed until you are in a better cash position? Or could you make any savings by benchmarking your suppliers? Here are 5 key areas where you might be able to save your business money. The important thing to remember here is that whilst cost cutting is always worth exploring, be careful not to sacrifice the quality. After all, sometimes it’s not the cost of a service but its value that is more important.

5. Negotiate with suppliers

If you can’t reduce your spending with a supplier perhaps you could negotiate a payment extension instead. This will give you more time to raise the necessary funds to settle your outstanding balance. Whilst not all suppliers will be able to extend your terms without compromising their own cash flow, those who can will appreciate your honesty as it will allow them to update their own cash flow forecasts.

6. Monitor and review

As with any aspect of your business, implementing a plan or a change is just the beginning. Once you have solved your short-term cash flow problem it’s important that you continue to closely monitor your cash flow going forward. This will ensure that you are alerted as soon as possible to any problems and will have a better chance of fixing it. 

Remember, prevention is better than cure

If your business regularly experiences cash flow gaps it can derail your success. Therefore, it’s important to get ahead of the problem and prevent it becoming an obstacle to growth. Here are four articles to help you improve your cash flow management:

  1. 7 steps to better cash flow management 
  2. 5 ways to protect your cash flow from bad debt
  3. Forecasting, Planning and Budgeting: 7 Top Tips For FDs and Owner-Managers 
  4. 99 ways to improve your cash flow

As an independent commercial finance broker, we can help your business to secure the funding solutions needed to improve cash flow so that you can pay your bills and invoices on time.

We will listen to your specific challenges and requirements before using our extensive market knowledge to introduce the most suitable facilities for your needs.

Contact our team on 0800 9774833 or request a call back to see how we can help your business.

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Some of the funders we work with

  • Close Brothers Invoice Finance
  • PNC Business Credit
  • Leumi ABL
  • InvoCap
  • Secure Trust Bank
  • Davenham Asset Finance
  • Woodsford Tradebridge
  • Santander Corporate & Commercial
  • Positive Cashflow Finance
  • Lloyds Bank Commercial Finance
  • 1pm
  • Innovation Finance
  • Royal Bank of Scotland
  • Regency Factors
  • Investec
  • IGF Invoice Finance
  • Haydock Finance Ltd
  • Boost Capital
  • Trade Finance Partners
  • Asset Advantage
  • Ultimate Finance Group
  • ABN AMRO Commercial Finance
  • Barclays
  • Pulse Cashflow Finance
  • Roma Finance
  • Calverton Finance
  • Peak Cashflow
  • Bibby Financial Services
  • Partnership Invoice Finance
  • Giant
  • Aldermore Invoice Finance
  • Creative Capital
  • Gener8 Finance
  • Team Factors
  • Berkeley Trade Finance Ltd
  • Metro Bank SME Finance
  • GapCap Cashflow Finance
  • Merchant Money
  • Skipton Business Finance
  • Nucleus Commercial Finance
  • Davenham Trade Finance
  • MarketFinance
  • 4Syte
  • iwoca
  • Shawbrook Business Credit
  • Spotcap
  • Catalyst Finance

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