There is hardly one of our business clients at Odiri Tax Consultants who does not at some time run into cashflow issues. These may be current and short term in nature: or they may be endemic to the business and their persistence threatens its survival. Here are some key pointers.
Current Cash Issues
Credit Control is something everyone hates to do – non-one relishes chasing debtors: but it has to be done, and never left to allow the debt to languish or an issue to fester. Depending on your business, you may have an accountant or bookkeeper who will do the routine chasing, leaving you to weigh in when a dispute or persistent debt situation arises: or you yourself will do it all.
A general rule is not to antagonise the customer unnecessarily: state the case plainly and ask if there is a reason for non-payment, as well as obtaining an agreement as to when and how much the person will pay.
Consider also whether you are prompt enough in issuing invoices. Many small operations save them up until the end of the month, and even later if they are ‘too busy’. This is very bad for cash flow.
Strategic Cash Issues
The traditional way for a business to smooth out its cash situation is to negotiate an overdraft facility or loan with its bank. However, ever since the 2008 financial crash there has been an increased reluctance on the part of banks to support young small businesses in this way.
Depending on the industry you are in, there are likely to be specialist lenders who specialise in providing lease facilities backed by the long-term value of specific machinery or IT equipment that you need. This can preserve funds that you would otherwise spend on capital expenditure, to help support ongoing cashflow.
Confidential invoice discounting (whereby you get paid the majority of your invoices without the client being aware) or factoring (where the third party financier is visible to the client) is a valuable tool in cash management – you lose some margin via commission but you gain from instant availability of cash for invoices.
The full array of issues is too large to cover in a short article, but we at Odiri welcome a discussion with you about the cash issues that you confront, and we will work with you to overcome them.
