Solving cash flow problems

  • Sarah Greig
  • 29 Sep, 2017
Problem 1: Cash flow

Problem 1: Cash flow

Maintaining a healthy cash flow is critical to running a successful business. Many businesses are profitable, but collapse because they run out of the day to day cash to pay the bills. From working with businesses over the past 25 years, we know that cash flow problems are one of the main struggles a business has, and it’s not just the smaller businesses that have this problem, it can be widespread, affecting larger businesses on a bigger scale.

If you are experiencing cash flow issues you’re not alone – any business can be affected! Here are four ways to free up cash in your business:

  1. Build relationships with suppliers

Most businesses have strong relationships with one or more suppliers. Why not speak to your suppliers and negotiate a discount? What can they offer if you make early payments or make repeat orders? Would they allow staged payments so you can break up how much you’re paying at one time?

Making sure you are getting the best price and terms can ease monthly cash flow, making outgoings more affordable.

  1. Manage stock levels

Having a keen eye on stock levels can save unnecessary costs. Too much stock sitting around is cash that is tied up unnecessarily. You may even be paying extra costs for storage!

Reconsider your strategy, plan ahead – perhaps it would be better to order smaller amounts but more frequently? This also ensures you can update stock without waste, and importantly more of your cash is in your account and can be used for more pressing matters.

  1. Lease equipment rather than buying

Large purchases drain a big sum of cash from the business, whereas leasing simply spreads the cost, usually over a number of years. Leasing also allows you to budget the fixed cost into your financial plans. Plus, leasing makes it easier to update or upgrade equipment if required.

  1. Raise money against invoices

See your unpaid invoices as a business asset. The money is going to be paid to your business, you just can’t control when!

By using an invoice finance specialist, you can release the cash immediately from invoices without having to wait for customers to pay you. You will receive a percentage of the invoice value on day one.

The invoice finance company will also handle your credit control so you don’t have to worry about checking if customers have paid or chasing outstanding debts. It’s a cost-effective way to run a sales ledger without employing a credit controller.

Cash flow is a tricky problem for all SMEs, but by taking a few simple steps, the pressure can be eased.

Read more in the problem solving series here:

Solving late payment problems.
Solving supplier problems.
Solving business seasonality problems.