Clues to potential cash flow problems

Spot the warning signs: Subtle clues to cash flow problems

Often the first external sign that a business is having cash flow problems is when it publicly admits to taking insolvency measures. But if the management had been in touch with what was going on, they should have known there was a growing problem for some time before that.

A good question to ask of your own business is whether it is possible to spot the early warning signs of potential cash flow difficulties. Because the sooner they are identified, the more time you have to take action.

Time is important, as even a few days delay in raising new working capital could, if left too late, see your firm unable to trade for a short while. Which in turn could dent customer confidence and reduce future sales.

Clues that cash flow problems could be looming

1. You are increasingly reliant on a few large customers. Winning lots of business from the same customer can be great. But if your enthusiasm to sell means you’re extending more and more credit to them, you’re also increasing your risk.

What would happen if the customer suddenly went into insolvency, leaving their debts unpaid? Or if they simply took longer and longer to pay? Take the time to assess what this might do to your cash flow.

2. You are hiring more staff. Taking on employees is a sign of growth, and a step you’re unlikely to undertake lightly. But staff need to be paid, weekly or monthly, and the slightest hint that this might not happen on time can seriously reduce productivity.

Not only do the employees need paying on time, so too does HMRC. They also take a dim view of late payments, and are increasingly taking firm action to recover debts.

If higher turnover means hiring more staff, make sure you have the cash to pay them on time. If your customers take 60 days to pay, will you be able to fund the payroll?

3. You are increasing your level of imports. Buying goods in from overseas often requires different forms of funding, particularly if you are ordering in bulk. Suppliers want to be paid before consignments leave their country, long before you will get any cash from your customers.

While extra imports can be a sign of growth, they can also place extra strain on your cash flow. Don’t let the impact of this take you by surprise, and take the time to plan funding well in advance.

4. Debtors are taking longer to pay. One sign of a growing business is that customers do not pay their bills so quickly. This is often because your credit control is not getting the attention it deserves.

Most customers need reminding of their outstanding invoices, sometimes more than once. Forget to do this and they will neglect to pay. If, on average, your customers begin to take one week longer to settle their bills, your working capital could be reduced by thousands of pounds.

 How to reduce cash flow worries

If you spot the subtle signs of potential cash flow problems, it’s important to take action as soon as possible.

Every day, our Business Recovery experts are talking to forward-thinking firms like yours, businesses that want to act now to secure their future success.

By speaking to us, you have access to a network of commercial funders looking to put money into profitable organisations. This can happen through whatever mechanism is most appropriate, such as invoice finance, asset finance or direct investment.

What’s important is that you get the cash you need to keep your business growing.

Avoid cash flow worries by giving the Business Recovery team a call right now for a free no-obligation consultation.