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Common cash flow problems and how to solve them

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A healthy cash flow is essential for a successful business. If a business has cash flow problems, it needs to know how to solve them.

Negative cash flow and low cash flow

The biggest cash flow problem is having a negative cash flow. Simply put, if a business spends more than it earns, there will negative cash flow and this is not sustainable.

Low cash flow is when the business is making a profit, but the profit is low. This can result in there being little left in the business bank account, resulting in a negative effect on company growth. Expanding a company is usually achieved through developing new products and services and marketing. Low cash flow will make it difficult to finance these processes in order to grow the company.

It is possible to be making a profit on paper, but still have low cash flow. If a business sells goods and does not get paid for them until they are received, then shipping delays can mean that your sales are healthy but it takes time to receive payment.

If a business offers goods and services on credit terms, then similarly, while sales may be good, delays in waiting for payment can cause negative or low cash flow.

The solutions

A temporary solution to cash flow problems is to take out a loan.

Make sure that goods are shipped promptly. If shipping delays are caused because items are temporarily out of stock, then the restocking systems need improving. The business needs to know what stock levels are required on each item to satisfy expected demand.

Try to have more cash buyers. You may need to provide discounts for people who pay on delivery of goods or services. Offer discount terms for clients paying before the standard 30-day payment due date.

You may wish to negotiate with your suppliers to extend the credit period you have with them. If your receive physical payments, make sure that they are deposited into the bank promptly – especially cheques because of the time they take to clear.

A business can also look at areas where they can save on outgoings. Examine every expenses and assess whether it is necessary. Save money by switching utility suppliers or broadband providers, and negotiate to pay some bills by instalments rather than all at once.

Lastly, an accountancy outsourcing service like Sollertia. We are experts in anticipating cash flow problems and finding solutions to deal with them.

Five debt recovery tips for small businesses

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Small businesses need a healthy cash flow, but this can be difficult if the business is owed money that’s hard to recover. These five tips are designed to make it easier to recover debts.

1. Minimise headaches

Why not outsource your credit control to Sollertia? We can chase up late payments for you, freeing up your time and easing your stress levels?

As a firm, we have years of experience and can handle all of your business finances, including debt recovery.

2. Use preventative measures

Prevention minimises overdue payments. If you allow customers to pay after services or goods have been delivered, make sure every new customer is credit checked. Set strict credit limits for new customers and make sure that they agree to sign your terms and conditions.

Some businesses incentivise paying on time by offering discounts.

3. Create a set procedure

Your business needs set procedures to recover money. This starts with sending out an invoice as soon as a service or goods have been delivered. A few days before payment is due, send a statement that acts as a reminder that payment is needed.

If payment is not received by the due date, send out a reminder letter. If this fails, then a telephone call can be made to the person in charge of paying invoices. Find out if they have any queries about paying, or if they are struggling to pay. If they are short of funds, an instalment plan may be appropriate.

Communication should be polite and firm. Harassing a customer or being angry is likely to be counterproductive.

4. Use a debt collection agency

You can hire a debt collection agency to do the debt recovery precedence for you. Professional debt recovery agencies will chase late payments in a professional manner.

5. Legal action

This is a last resort, and starts with a formal letter advising your clients that you intend to take legal action. If payment is still not been made, there are a number of legal options available including the small claims court. For large debts, you can ask a court to declare an individual debtor bankrupt or they can wind up a company. Provided the debtor has enough funds to pay the bill, the threat of this court action should be enough for them to pay up.

Most businesses will have overdue unpaid invoices, but a good outsourced accounting service will advise you on how to deal with late payments.