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How to manage cash flow when customers pay late

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How to manage cash flow when customers pay late

Reviewed: 8th May 2017

Keeping control of business cash flow can be challenging when your customers don’t pay on time. You need to pay your own bills, but there isn’t always enough cash coming in to cover the monthly overheads.

Perhaps your business is profitable, but you still rely on an overdraft facility simply to survive? Apart from being an expensive way to fund your operation, if the bank decides to call in the overdraft, you’ll be at risk of insolvency if you can’t pay straight away.

Even the most profitable small businesses fail because of poor cash flow, so what can you do to improve the situation? Here are a few solutions that could help.

Cash flow forecasting

New liabilities including pension auto enrolment, plus increases to business rates and the National Minimum Wage (NMW), may be putting additional pressure on your cash flow.

Being able to predict your likely cash needs over the next few months helps you stay in control, and take early action if more working capital is needed. 

If you apply for finance, a cash flow forecast will help to persuade the lender that you are a good risk. In essence, it is an important piece of management information that helps your business survive. 

What should you include in a cash flow forecast?

A cash flow forecast should include all likely cash payments in and out, as well as the dates of payment and expected receipt. You could use an online template, or ask your accountant to help if you are not confident about completing it yourself. 

If you are particularly worried about cash, weekly cash flow forecasts will help you keep a close eye on the situation. Some companies forecast their cash needs for a full 12 months ahead, but in general, 1-3 months offers a more realistic view of your current position.

Being able to predict cash flow is particularly important if you run a seasonal business, but it also helps ride out the natural fluctuations of trading for any company. 

Effective credit management

Collecting the monies owed to your business is key to enjoying a healthy cash flow, so you may want to review your credit management and collection processes. Simple changes could see a dramatic difference to the amounts of cash you have available, including:

  • Invoicing as soon as work is complete, or products have been delivered, rather than waiting until the end of the month.
  • Setting up solid procedures to collect your debts – sending regular written reminders, as well as keeping in contact with debtors by phone. You also have the right to charge interest on the debt, and should include a clause to this effect in every invoice.
  • Credit-checking your customers at regular intervals so you are aware if they are at risk of insolvency.
  • Not tying up too much working capital in stock – try to set up an efficient stock management system so you can fulfil all orders without compromising your cash flow unnecessarily.
  • Ask your own suppliers for better terms – extending your own payment terms can relieve some of the pressure when your customers pay late.

Additional finance

If you have been turned down by your bank, there are a number of viable alternatives that offer flexibility and a speedy application process.

Invoice finance

The lender advances a pre-agreed proportion of each sales invoice in cash each month, with the remainder being received once the invoice has been paid by your customer. This type of finance can be hugely beneficial for companies with ongoing cash flow issues. A continuous supply of working capital is available, which grows with your business.

Peer-to-peer lending (P2P)

P2P lending involves a number of investors lending small amounts of money to your company via an online platform. The idea is that lenders secure a better rate of return on their investment, and you are able to borrow at less cost.

Cash flow loans

Cash flow loans use predicted future cash flows to assess the lender’s exposure to risk. Your company’s credit rating is taken into account on application, as well as its previous history of cash flow. 

If you are struggling to manage cash levels in your business, Real Business Rescue can help you gain control before the situation gets out of hand. Once cash flow is compromised, it can be very difficult to get back on track and reverse a financial decline. We operate from 55 offices around the country, and will arrange a same-day appointment free-of-charge.


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