Cashflow Problems and How to Avoid Them

As with all forecasts, the further we look into the future, the less certainty we have. Because of this, and because businesses operate in a world with changing fashions, a changing economic climate and changing competition, a business's Actual Cash Flow Statement can, in some cases, be very different from its Cash Flow Forecast.

​

All businesses should monitor cash flow and examine any differences between actual and forecast figures.

​

This will allow action to be taken before a real business crisis arises. As experience is gained in managing and monitoring cash flow, business owners and managers will be able to improve the accuracy of their forecasts.

​

Cash keeps business in business. However healthy the order book and profit margin, if a business runs out of cash, it won’t be able to pay its suppliers, its wages or its overheads, and it will fail.

​

Can you answer yes to all of these questions?

• Do you have sufficient cash or finance available to meet commitments as they fall due?

• Are you confident that this will remain the case for the foreseeable future?

• Do you have, and regularly update, a cash flow forecast to ensure you stay within your financing facilities?

• Are your major customers paying you promptly and not putting you under pressure to extend payment terms?

• Is your product or service so vital to your customers that they will pay your invoices first if they have to choose whom to pay?

• Are you sure that none of your customers are having financial difficulties that might make them pay you late, or not at all?

• Are you implementing good credit management practices?

​

Five Top Tips

1. Plan your cash flow requirements carefully, allowing for differences in the payment terms you receive from your suppliers and those you give to your customers. Regularly update cash flow forecasts to ensure you stay within your financing facilities.

2. Monitor stringently against the plan so that you spot any variance as early as possible.

3. If you think you might have a cash flow problem, talk to your bank or financier immediately. They might be able to help, and the earlier you speak to them, the more options there will be.

4. If you can’t pay a supplier on the due date, talk to them as soon as you know you cannot do so. Again, the earlier you talk to them, the more flexibility they’ll be able to show and the more likely they are to be able to accommodate an extension to payment arrangements.

5. Remember, early communication is key – if you avoid talking to suppliers, your bank and other parties, you might find that supplies or finance have been withdrawn or legal action has started, and things will quickly escalate.