When cash flow is tight, you will struggle to pay your creditors and that puts your company at risk of gaining a poor reputation. There are several steps you can take to ease your cash flow woes. Here are 11 for starters but talk with one of our advisors for specific help with your situation.

1. Get your cash cycle sorted

Understand the “cash cycle” in the business – analyse where the money is being “blocked” from freely flowing into profit. Blockages can occur anywhere from raw materials purchase, goods inwards, manufacturing, stock holding, distribution, resellers, and of course debtors. You may need the assistance of an advisor to help you unblock your financial pipes.

2. Collect your debts

Make sure that you collect your debts efficiently – even now we come across many businesses that don’t have a systematic and controlled way of handling their debtors. Don’t leave YOUR money in your customers’ bank accounts.

3. Find debt collection solutions

Difficult debtors probably have cash flow problems of their own. Put them on instalments if you can’t get the whole lot in one go. But don’t let it drag out at a pittance per week. Make it meaningful and short. It is perfectly acceptable to negotiate with your customer to ring-fence old or outstanding debt into a term loan with interest. The deal is dependent on them keeping their account current and tidy. The term loan is then registered and you are a secured creditor.

4. Implement staged payments

Before someone becomes a problem debtor, make sure you are taking deposits, progress payments or materials payments. These strategies make a huge difference with cash flow. However, your systems need to be robust. All customer cash and deposits need careful accounting and reconciliation. Remember a deposit paid to you is money OWED to the customer until the work is done.

5. Register debtors with PPSR

Lodge all debtors, of any size, with the Personal Properties Securities Register and make sure your terms and conditions of trade are updated to the latest form, including the PPSR and the rights to repossess goods. The old Romalpa clause is gone but most of the features can be recaptured with careful use of the PPSR wording.

6. Check expenses

Check all your expense categories carefully – do you need all those vehicles?

  • Should your business be paying for your marina berth?
  • Are your staffing levels appropriate to your needs over the next 12 months?
  • Do you have the best deals for phones, power, insurance?

7. Consider consolidating your loans

Make a summary of all your term loans and hire purchases. What are you paying? What are the interest terms? Who are the loans with? Get your accountant involved in seeing if any debt consolidation or renegotiation is possible. You’ll be surprised how much you are paying on some deals.

8. Review supply agreements

Check out alternative suppliers for your raw materials and negotiate hard. We have had many clients who believed they were on the best deal possible until they shopped around and haggled. In one case we achieved a 20% reduction in a raw material cost. What would that do for you? Talk to your brokers, vendors and suppliers. Making each aware of competitive offers can often ensure you get the best possible deal!

9. Consider debtor finance

If it is appropriate to your business, talk to your bank about debtor finance (a sort of factoring). Debtor finance is not suitable for all businesses and your banker may not have the knowledge or experience needed to correctly advise you. Talk to your accountant AND an experienced business advisor. A simple rule of thumb is the person earning the commission by selling the service is not necessarily the best person to offer impartial, sound advice. Advantage Business has a strategic partnership with Scottish Pacific Finance so our advisors are in a unique position to assist in this area. Talk to us about how debtor finance may free up your cash.

10. Back cost

Make sure your financial and profit measures are in place job by job and month by month. Back-cost every job to check quoting and production accuracy. Check all unusually high or low-profit jobs and work out the reason for each. Check your staff productivity rates. It is very easy, with a staff of ten, to lose the equivalent of a “person week” each and every week.

11. Review sales and marketing strategies

When you’ve done all that, increase turnover by having a look at new markets for your existing products or services, or new products and services for your existing customers, use professional help to get your marketing strategies clear, and then push the marketing.

Then see if you can increase the average sale price (value per transaction) by training the staff in upselling, cross-selling, bundling products together, selling maintenance packages or extended warranties and similar strategies.

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About how we can help with business recovery.