Poor cash flow is a key cause of insolvency for many companies, but the seriousness of the situation isn’t always clear when you’re involved day-to-day. Furthermore, even when cash flow has been compromised for some time, a company can suddenly slip into insolvency due to a combination of other factors.
Understanding what’s causing the negative cash position is crucial if you’re to reverse your company’s decline, and it’s advisable to seek guidance from licensed insolvency practitioners (IPs) in this respect. They can identify cash drains within the business, and quickly offer solutions to avert insolvency.
But what specific actions can you take to help your situation, both in the early stages of financial decline, and also when insolvency seems inevitable?
Cash flow forecasts highlight your company’s cash needs over a number of months, and identify any potential shortfalls. This knowledge allows you to secure additional sources of finance ahead of time, rather than having to take emergency action because the company can’t meet its liabilities.
Increasing the efficiency of your credit control procedures can quickly improve the company’s cash position - by invoicing throughout the month, for example, and consistently chasing payments, a regular inflow of cash is encouraged.
When used in conjunction with other steps, a cost-cutting exercise can be the foundation for longer-term business growth, but even as a standalone measure, cutting costs streamlines the business and optimises the availability of working capital.
Extending the company’s reach within your own market, as well as looking to other markets for additional revenue streams, can sustain the business over the long-term.
You may be able to reduce your monthly debt repayments through informal negotiations with your creditors, allowing vital breathing space for the company to recover. Although this doesn’t automatically stop any additional interest and charges being added to the debt, your creditors may be willing to consider this if you’ve been a reliable payer in the past.
Finding a flexible source of additional finance provides the regular working capital you need, or alternatively, a cash lump sum based on the value of one or more business assets. Depending on the make-up of your business, invoice finance or asset-based lending may offer a good alternative to bank finance, which is less flexible and tends to be associated with long application processes.
Struggling to pay HMRC liabilities can be particularly worrying for directors. HMRC has the power to quickly close down companies they believe to be insolvent, and non-viable. If your financial problems are temporary, however, you may be able to negotiate for more time to pay the company’s tax and National Insurance arrears. Time to Pay arrangements generally last for 3-6 months, although it may be possible to negotiate for a longer duration.
If your company has already entered insolvency, but is considered viable in the long-term, a Company Voluntary Arrangement (CVA) can help you trade your way out of difficulty. CVAs are formal insolvency solutions that require the input of a licensed IP, who negotiates a new monthly repayment plan with your creditors.
If your company’s cash flow is poor and you need professional assistance to get back on track, our licensed insolvency practitioners will provide specialist advice. With 75 offices across the UK, you’re never far away from expert and confidential advice.