Christmas is usually a challenging time for the management of business cash flow.  It is a key trading period, so demands on cash are high.  However, collections can be slow as your customers try to cope with their own cashflow problems.  Then, add in the traditional trading slow down in the first two or three months of the new year plus the payment of BAS at the end of February.

These are several of the most common problems encountered around debtors and stock:

- Slow debtor payments – as these don't pay you on time this can harm your ability to grow sales and profits, and could lead to a breakdown in customer relationships.

- Debtor insolvency – the customer may become insolvent and the debt not be recoverable at all.

- Stock acquisition – you need to import or purchase extra stock, so too much cash is locked up in unsold inventory and/or slow debtor payments.

- Loans – can be difficult and slow to access from the usual bank lenders, requiring security and a proposal for use and clearance.

- Overtrading – the business could have too many orders but this level of trading cannot be sustained by available finance, so the business runs out of working capital and becomes insolvent.

Ten point checklist to improve cashflow:

1. Invoice early, ask for deposits, obtain credit references

2. Deal with slow payers now

3. Review your systems for receivables management problems

4. Clear slow stock now to obtain cash

5. Offer early settlement discounts to encourage prompt payment

6. Prepare an accurate Sales Forecast, Profit & Loss Forecast, and Cash Forecast with assumptions based on best case, worse case and most likely

7. Analyse the forecasts and identify periods of high cash usage and consider how to deal with concerns

8. Consider priorities – delay other investments and personal spending until cash flow will improve

9. Analyse outgoings and reduce costs where possible

10. Look at finance to fund working capital needs.

There is no magic solution for working capital finance, but consider the following:

- Bank overdraft or line of credit – apply early, have your forecasts available to show the need and the capacity to pay, and expect that the bank will require security.

- For import stock – trade finance may be a solution

- For a quick source of cash from accounts receivable – consider factoring or invoice discounting

- For export stock – trade finance or export finance may be available

- For cash for working capital – loans may be available from the specialist 'financial technology' firms (these look at your average monthly sales and lend a percentage of your turnover over say 6 months)

The cost of using these specialised lenders is not prohibitive, and if it helps you fix a problem or get the outcome you want, is acceptable value.  If you'd like some help with anything in this Blog – identify the problem, fix a problem, forecasts, or working capital finance – give us a call.  We can put you in touch with the right people.