How to Solve a Cash Flow Crisis and Prevent Your Business from Flat Lining 5

Cash is the life blood of any business and once the cash flow dries up, not even CPR will be able to bring it back to life. It has been estimated that around 90% of small business fail because of cash flow problems and even profitable companies can end up filing for bankruptcy if their customers don’t pay. This is why you should make record keeping and accounting a priority—by keeping a close eye on the accounts you will always be forewarned when the cash flow is looking dicey. So if you have reached that stage, how can you improve the cash flow in your business?

Instant Cash Flow Fixes

  • Invoice factoring – Selling your outstanding invoices to a third party can release cash quickly, but you will have to pay interest and fees once they recover the money from the customer.
  • Bank overdraft – You may be able to arrange or extend an overdraft facility if cash flow has become a problem, but this is an expensive option and there is no guarantee that your bank will approve the request.

Long Term Cash Flow Solutions

  • Never pay suppliers before you have to – If you have managed to negotiate good terms, you could have up to 90 days to pay, which will give you some extra time to chase up outstanding accounts receivables. Another way of extending your line of credit on accounts payable is to pay via credit card. This will give you an even longer period of float. Just don’t exceed your credit limit or you will face steep interest charges.
  • Have rigorous credit control procedures in place – It’s not helpful to your business if you make a point of paying your creditors on time yet you are continually dealing with bad payers. Don’t let bad payers get away with it. Chase up late accounts and introduce early payment discounts and late payment penalties to try and rectify the situation.
  • Watch your stock inventory – Overstocking can tie up significant amounts of cash in a business, so never buy more stock than you need.
  • Lease don’t buy – Leasing assets such as company cars, machinery and IT equipment can help to spread the cost and improve cash flow; you may also be able to enjoy tax benefits.

Cash Flow Management Strategies

Always know where you stand. One of the principles of good business is to keep a good handle on where the money is at all times. Draw up cash flow projections for the next twelve months so you can plan for any big expenses, and if you struggle with financial record keeping, hire an accountant to keep you on the straight and narrow.

Start as you mean to go on. Negotiate favourable terms with customers and suppliers right from the beginning and if you have persistent problems with a few late payers, purge them in favour of clients who are able to meet your payment terms. By implementing good cash flow strategies right from day one, you can minimise the chances of cash flow issues jeopardising the future of your business.

About the author:

Doug Barden is a managing partner in leading accountancy and business advice firm Beech Business Services.  For more information on their accounting, payroll and book-keeping services visit


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