Kevin McLeod
Written By Kevin McLeod
Licensed Insolvency Practitioner
July 21st, 2023

Managing cash flow is critical to the success of any business. Cash flow is notoriously difficult for growing SMEs to manage, but even large companies can suffer from a cash flow crisis that can lead to their collapse. 

You might assume that a cashflow problem is a sure sign of a struggling business, but the opposite can be true. It’s often the case that businesses grow too quickly and overstretch themselves financially. They’re then left without the cash to pay suppliers, creditors, employees and their bills when they become due.

With the consequences of a cash flow crisis so severe, potentially leading to the insolvency and liquidation of the business, this is a situation that must be resolved quickly. So, what can you do to turn your company’s cash flow around? Here are seven tips from our team of licensed insolvency practitioners, who have helped businesses in this situation many times before. 

(1) Explore your finance options

When you need to turn your cash flow position around urgently, finding short-term finance is one of the fastest ways to put a solution in place. Business overdrafts and credit cards are often relied on when businesses are short of cash, but you may have been refused these facilities in the past or have already reached your maximum lending limit. In that case, it’s time to explore alternative finance streams. 

A business loan could provide an injection of cash into your business, but it’s likely to take too long to arrange and the repayments will put further strain on your cashflow in the future. Invoice finance is an alternative funding option you may wish to consider that many businesses are turning to.  

Invoice finance gives businesses a way to unlock the cash that’s tied up in unpaid invoices quickly, rather than having to wait 30, 60 or even 90 days for a customer to make a payment. This is done by selling the invoices to a specialist finance provider. They will pay you a proportion of the invoice’s value (typically 70 to 95 percent) upfront. When the customer finally pays the invoice, you will receive the remainder of the invoice, minus a service fee.  

One of the key benefits of an invoice finance facility is that it can take just a day or two to set up and it’s usually available to businesses with a less than perfect credit record. That can give you fast access to cash so you can make payments and get your business back in shape. 

(2) Negotiate with your creditors

If you’re struggling to make payments on time, the temptation might be to try and avoid contact with your creditors. However, that approach will only make matters worse. Many of your creditors are likely to be small or medium-sized businesses too, so they’ll understand the cash flow pressures you are under. 

In our experience, businesses that call a creditor to explain the situation and propose a date they intend to make the payment by are often surprised by the response they receive. Even more powerful creditors such as HMRC, the banks and other finance providers may be willing to provide some flexibility before they take enforcement action. Every creditor wants to maximise their returns, so most will prefer to wait a little longer for a payment to be made rather than taking expensive and time-consuming enforcement action against you. 

(3) Accelerate your receivables

There are several steps businesses can take to speed up the rate at which money comes into the business to give their cash flow position a boost. That includes: 

  • Ask customers for a partial-payment upfront – Rather than waiting until you have supplied a product or service before asking for payment, you can boost your cashflow by asking for a proportion of the invoice to be paid upfront.
  • Send out invoices more quickly – Some businesses leave invoicing until a certain day of the week or month, which leads to unnecessary delays in payment being received. Instead, adjust your processes so that you send invoices out as soon as a product or service has been delivered. After all, the sooner you invoice, the more quickly you’ll get paid.
  • Improve your collections process – Implement a new collections process to ensure you start chasing debtors for payments as soon as they become late. This can start with payment reminders even before the payment is due. Phone calls, late payment interest charges and the assistance of debt collectors, if necessary, can all help to reduce the rate of late and non-payments.
  • Offer early payment discounts – Offering discounts of 2-3 percent of the invoice value if payments are made on receipt of the invoice or within 7 days can be an effective way to improve your cash flow. However, it will come at the cost of your profit margins. That may make it a strategy you only choose to employ when cash flow is tight.

(4) Sell non-essential assets

This is a strategy that you’ll only be able to use once or twice, so it’s not something you should rely on in the event of a cash flow problem. However, if you are in a cash flow crisis and you can’t see any other way out, offloading non-essential business assets, such as vehicles or stock, could be a quick and effective way to raise the cash you need. Before you make any decisions, you must ensure that the sale of the asset will not impact your core operations. 

(5) Reduce your expenses

Dramatic cost-cutting measures could potentially do more harm than good by damaging employee morale and alarming your customers, but you may still be able to reduce your costs with a few minor tweaks. For example, you could reduce the amount of company travel over the short-term by opting for remote meetings using video conferencing technology. Putting a freeze on overtime, cancelling non-essential software subscriptions and eliminating discretionary spending are a few other steps you could take.

If you have a serious and prolonged cashflow crisis, then inevitably, you will have to look at payroll. This is the biggest expense for most businesses, so you may have to lose personnel who are not key members of the team or critical to the delivery of your products and services. If you want to avoid making redundancies, temporarily shortening the working week, turning full-timers into part-timers and cutting employee perks or benefits could be an alternative route to take.  

(6) Increase your revenue

If your company is otherwise viable and profitable but you need a quick injection of cash, running a flash sale could be a simple way to increase your revenue and get you through a rough patch. This strategy is most suitable for companies that sell physical products and have healthily profit margins. Similarly, if you’re holding excess stock, a flash sale could be an effective way to reduce your carrying costs and turn that stock into cash.  

Over the longer term, if your sales volumes are healthy, increasing your prices may be an effective way to boost your revenue and avoid a cashflow crisis in the future. Although you might lose some of your most price-sensitive customers, a small price rise may lead to an increase in profitability that more than makes up for the lost sales.

(7) Explore your business rescue options

If your company’s cash flow problem cannot easily be resolved using one or a combination of the tips above, there’s a good chance your business is insolvent. An insolvent business is one that cannot pay its bills when they become due. If you think your business is insolvent, you should seek professional assistance from a licensed insolvency practitioner immediately. They will provide specialist advice and give you access to a number of formal insolvency procedures. That includes:

  • Company Voluntary Arrangement (CVA) – If you cannot pay your debts as they stand, a Company Voluntary Arrangement allows you to renegotiate with your creditors to make payments in monthly instalments over a period of up to five years. 

A licensed insolvency practitioner will analyse your business affairs and enter into negotiations with your creditors on your behalf. If your creditors agree to the terms of the CVA, no more interest or charges will be added to your debts and all legal action will be stayed.  

  • Time to Pay Arrangement (TTP) – If you have tax and/or National Insurance arrears that you’re struggling with, a licensed insolvency practitioner can negotiate with HMRC on your behalf to potentially give you more ‘time to pay’.

Time to Pay arrangements typically give businesses between three to six months to repay the money they owe in the form of instalments. During this time, the business will be expected to pay all of its ongoing tax liabilities as well as the instalments for the money it owes. HMRC will only usually consider making Time to Pay arrangements with businesses that have been prompt filers and payers of tax in the past. HMRC will also have to be convinced that the proposed monthly repayments are affordable for the company. 

Need expert company cashflow advice?

At AABRS, we work with company directors across the UK to help them solve short-term cash flow shortfalls and longer-term cash flow events. As well as providing professional advice, we can also negotiate with creditors such as suppliers, landlords and HMRC on your behalf to put formal insolvency procedures in place and help you turn your business around. 

For a free, no-obligation consultation, please get in touch with our team of licensed insolvency practitioners today.