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• 25 Oct

  How To Solve Cash Flow Problems

  If you are looking for a solution how to solve cash flow problems for your company, there is a simple solution in the form of invoice finance.

  How To Solve Cash Flow Problems

  Firstly, let's look at the underlying causes and then possible solutions.

  What Are The Causes

  Cash flow problems occur when the income of a business is too low or not received quickly enough in order to settle its expenses. There can be a multitude of causes which can include:

  • Income Deficit - having an insufficient income to cover your expenses. In some cases, this can occur if there is a fall in the level of your sales, in such places as losing a customer for instance. Or it can result from an increase in your expenses that is not in line with an increase in income. For example, this could be caused by a supplier raising prices. You may need to grow your customer base in order to improve your situation.
    
    
  • Excess Credit - customers take too much credit and hence too long to pay you. Companies often have a sales ledger made up of numerous invoices which are not yet paid, where customers tend to take credit terms in excess of the terms allowed in some cases.
    
    
  • Expenditure - large one-off expenditures can have an impact on your cash position. This could be a large tax bill such as your quarterly VAT or it could be some other major purchase. Alternatively, it may be smaller regular expenses that are adding up.
    
    
  • Growth - although the goal of many businesses is growth, this can lead to problems funding that expansion. If you should land a large order, or if your sales are seasonally concentrated, it can lead to money pressures that require additional working capital. Rapid growth can lead to a situation called "over-trading" where your need for capital exceeds the amount of cash that are available.

  Solutions To Cash Flow Issues

  The solution depends somewhat on the cause of the situation. If a decrease or lack of sales has led to problems then trying to increase your level of sales might be the most sensible option. However, in the short term, you may need to get some funding to get you through, whilst you address the issue.

  The simplest solution is to inject some short-term funding into your business. Invoice finance is ideally suited for this kind of situation. It releases the cash that is tied up in your unpaid sales invoices and you can use this money for any purpose within your business. This means that you can use it to pay your suppliers more quickly or to settle one-off expenses such as tax bills.

  The service continues to work to improve your business cash flow by releasing part of the value of future sales invoices immediately, rather than you having to wait for customers to pay. In this way, the cash flow of your business is sped up. Please see our guide to invoice finance for details of exactly how this service can improve the working capital position of your company.

  By Glenn Blackman