How To Solve Cash Flow Problems

Companies should have credit control systems in place to collect any money that is owed in from customers.

Misaligned credit terms could mean that your supplier is demanding payment within 12 days, but you have extended 20 days of credit to your customers.

It’s not hard to see that cash flow problems could soon build up from this scenario.

The further down the line you are the more accurate your cash flow forecasting will become; this is because comparing actual figures to predicted ones will bring insight and, of course, enable you to adjust the figures so that they are more accurate going forward.

Investigating the reason for any discrepancies will achieve this – if you discover that you are spending more than you had thought on your utility bills, for example, you could look at your energy efficiency and whether other providers would be cheaper.

This will mean that credit terms can still be offered to the customer and the job will go ahead without a hitch – there is nothing worse than angry staff when there is no cash in the bank come payday.

The debt can be repaid as soon as the customer has paid, so interest will only be paid on the amount of time that you needed.The next step will be to generate useful reports to enable you to understand your company’s cash flow in simple terms.Growing your business too quickly can unfortunately hurt the business by causing cash flow problems.Companies can survive without profit for a while if they have cash reserves as a result of previous profits, but unfortunately it will eventually catch up with you, no matter how many savings your company has.Any measures taken should either increase sales figures, price or lower costs.This doesn’t mean that you have to refuse their custom if their credit record is poor, but measures can be put in place such as deposit requests or partial invoices if this is the case.Cash flow forecasts are essential for any new business.There is lots of information out there on the initial start-up costs of various businesses, but little about the working hours that an individual needs to put in for the first months and years, which are usually verging on the ridiculous.Unfortunately we have found that many of our clients have neglected their bookkeeping in the initial stages, because they have found themselves having to be a one-man-band.Another problem that we have found at the root of cash flow problems are customer credit terms which don’t line up with the suppliers’ credit terms.These issues can quickly spiral into poor cash flow to the extent that company bills can’t be paid.


Comments How To Solve Cash Flow Problems

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