Cash flow warning signs and solutions for your business
How stable and reliable is your cash flow? If any of these warning signs look familiar, it's time to look at solutions.
No matter what industry you work in, your primary goal at the end of the day is the same as everyone else's - you want to keep the money flowing.
You've got a wide range of expenses to cover every month, ranging from your employees' wages to the raw materials you need to build your product. The objective is to bring in enough revenue to cover everything.
Of course, making deals and securing the promise of incoming revenue is only half that battle. The other half is actually collecting the cash you're promised. When this process breaks down, it can put the health of your business in serious jeopardy.
How will you know when your business is in cash flow trouble? And once you know, what will you do about it?
Looking out for the warning signs
According to Business Victoria, there are some warning signs you can watch for if you think your business might be in trouble.
1. Chronic late payments
A tell-tale sign is a backlog of bills to pay - if your company consistently has trouble paying debts on time, it's probably because of hiccups in cash flow that need to be addressed.
2. Tightening margins
Your costs are going up but increasing your prices is not an option, leaving you with diminishing margins and cash flow pressure.
3. Access to finance
If you’ve reached your bank overdraft ceiling and can’t get an increase, this could put pressure on your cash flow, especially if your clients do not pay you on time.
Potential cashflow solutions
1. Tightening up your payment process and terms
Review how your company offers credit terms, collects debts and moves money into its accounts.
Smart Company cautioned that if you're lax about this, the problem can get out of hand quickly. "There's a growing trend among multinationals to extend their payment terms out to 90 days," said Michael Prior, of accounting firm PB Advisory Group. "You must determine if this business is worth it. Can you afford to provide credit for 90 days? Most small businesses can't."
Consider shortening credit terms or selling your goods on finance to receive payment faster, rather than on account.
2. Creating efficiencies and reducing costs
If raising your prices is not an option, try lowering your costs. See if you can negotiate discounts with your suppliers for early payment (see point 3 below on how you can access funds to do this) or invest in equipment that reduces staff costs or lowers running costs (e.g. energy efficient power generation and lighting).
3. Access alternate funding
Consider using debtor finance, also commonly known as invoice finance or cash flow finance. Debtor finance gives you access to up to 85% of your unpaid invoices, and can be used in conjunction with your bank overdraft. The more sales you make, the more funds you have available, giving you the opportunity to pay your suppliers on time to benefit from any discounts (see point 2 above).
If you’ve spotted any of the cash flow warning signs or are feeling the cashflow pinch already, get in touch with Classic Funding Group to arrange finance to ease the pressure.