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• 24 Oct

  Are Cash Flow Constraints Stopping Businesses Taking Orders

  Marketinvoice published some research in Finance Monthly, that indicates that some 87% of businesses may be stopped from taking on potential orders, due to cash flow constraints. That's a large percentage to be turning away business, at a time when our economy is experiencing little growth in GDP (Gross Domestic Product - the key measure of economic growth).

  Cash Flow Finance Oversupply

  There continues to be, what I would call an "oversupply" of cash flow finance within the UK receivables financing sector. These facilities improve cash flow by unlocking the money that is locked up in outstanding customer invoices.

  Daily Or Weekly Cash Flow Checking

  The research also found that 45% were checking their cash flow on a daily, or weekly basis. To me this indicates that cash must be tight, to need to check quite so frequently. Apparently, 30% require their accountant's help in order to check their cash flow position - I had assumed that the ability to check your own cash flow position would have been a prerequisite to running a business.

  How I Check Our Cash Flow Position

  I checked our cash flow position, my method is pretty simple:

  1. What's in the bank?
  2. From the bank balance, I track and deduct our outgoings and the VAT that we are holding, in order to arrive at an available cash figure.
  3. I track who pays, and within what number of days, so I can see when cash is likely to come in.
  4. I also track what needs to be paid when, and compare that with the cash position, sometimes adjusted for future cash receipts that I am expecting.
  5. A margin is added to my calculations to allow for errors or unforeseen expenses.

  Cash Flow Forecast

  If I want to produce a full cash flow forecast, I use a simple statement of cash held, cash expected, and cash expenditure. It's divided on a monthly basis (you could make it more frequent) such that it carries forward the cash balance at the end of each period. It's a simple calculation:

  • (Cash held + cash expected) - cash expenditure = cash position.

  Need Funding?

  If you are having cash flow problems and could benefit from an injection of funds, please call Sean on 03330 113622 for funding that is not driven by your credit status.

  By Glenn Blackman