Never has cash flow been more important in a business. Cash flow is the heart of a business, not just profit. If you haven’t got cash it can be a difficult and stressful time. Profit is important too especially if you need to raise finance.
Here are some interesting statistics:
Bacs Payment Schemes Limited conducted research into just how much late payments are costing the UK economy. The main takeaway stats included:
- 34% of SME business owners experiencing late payments say they have to rely on overdrafts to help them meet their monthly obligations
- 43% of SMEs spend roughly £4.4 billion in administration costs alone chasing late payments
- 11% of SMEs struggling with overdue invoices are forced to employ someone to chase up payments
Accountancy platform Xero boasts over 1.8 million small business customers. Their Small Business Insights is a dashboard that reveals the health of SMEs across the UK. For June 2019, only 52% of small businesses were cash flow positive, on average, small businesses were paid 9 days late.
Research from Xero & PayPal reveals over 1/3 (37%) of small business owners have considered closing their businesses in the last year alone due to problems with late payments. Further insights for the last year include:
- 52% of small business owners have used personal savings or borrowed money from friends and family to keep their businesses alive
- 26% stated their physical health would be better if late payments were no longer an issue
- 43% admitted that late payments affected their mental health, causing sleepless nights
- 27% felt that they would be in a stronger position to grow their businesses if the late payment problem came to an end
The key takeaway from this is you are not alone and with our help can work on changing this.
The first step to successful cash flow management is having up to date accounting records so everything is visible. We recently converted a client to Xero, reviewed their systems and processes and within the first week they identified a late invoice of £250k and significantly boosted their own cashflow.
The next step is to review your debtors or receivables ledger frequently chasing any overdue payments. You can automate this process using software called Chaser, which automates reminders to your customers about upcoming payments.
A lot of the time people forget about invoices to be paid until a statement comes through the post – often a month after the invoice was due, and then you must wait until their next payment run. This could be a delay of another 60 days!
Another step is to make sure you have clear terms and conditions with payment dates on. If you are unsure if they are good enough, ask a specialist to review them. It might cost you in the region of £150 but it could be the difference between getting paid – or not if you have to take a customer to court.
If you have exhausted all options for improving cash flow quickly you may need to raise some finance to cover the shortfall. There are numerous options available from secured and unsecured loans, overdrafts to invoice factoring. It is essential you get the right ones for your business to make sure you don’t fall into this trap again.
Most lenders will ask for previous years accounts, up to date management accounts and bank statements so making sure you have these is crucial for a speedy cash injection.