Cash Flow Mistakes That Could Sink Your Business

It’s a well-known fact that cash flow is king for business – and key to the survivability of any small business. Despite not wanting to think about it, many businesses simply go out of business because, although their profits looked good on paper, they didn’t have enough cash in the business to keep them afloat. At Debtcol we work a lot with businesses who are struggling with cash flow issue, helping guide them back to an even keel. In particular, there are 5 mistakes we often see businesses make, that cause a lot of cash flow problems, and today we wanted to share them with you.

Selling To Anyone And Everyone

In the early days of business you want to sell to anyone who is interested in your product or service – as you rightly should! It’s an exciting time. But even at the beginning, with every sale you take a risk, and that risk stays there as you grow and expand. The size of the risk, along with the impact on your business, will depend in part of when you take payment for the sale, and what your checking processes are. We’ve seen a lot of businesses struggle with cash flow because their customers couldn’t actually afford to pay for the products or services they bought, and absconded without paying after receiving them.

A key to making sure you minimise the risk of losing money is to be prepared. Do research on your customers, be careful with any payment plans you offer, and check whether they are actually able to pay for what they are buying. While doing things like background checks and credit scores might seem like a lot of work, it can be a lifesaver for your business.

Relying On Good Faith

We all like to think that everyone else will behave as we would. We assign our own values and moral code onto other people automatically, and believe it until they prove otherwise. That trust is even stronger when we’re dealing with family. Friends or close acquaintances we have a relationship with. But there is no law or even principal of law in this country that says we must act in good faith, and so if your client doesn’t behave as you wanted or expected them to do, you’re on shaky ground as to what you can do legally. This includes things like paying you on time, the right amount or at all. So if you want to avoid issues, you need to set out realistic expectations from the get go – and your tool for this is your written terms and conditions.

Sporadic Or Incomplete Invoicing

The chances are that you started your own business so that you can do the thing you love and get paid for it. As your business grows, that feeling of achievement only gets stronger, but it’s very easy to get caught up in the bits you love and forget about the admin. Having a clear, consistent invoicing system is important, otherwise it can cause a lot of problems. For one, you can’t be sure when payments are due to come in, and if you forget to invoice at all then you can bet those payments won’t materialise by themselves! Sadly a lot of businesses struggle to invoice consistently, and this causes a lot of cash flow problems within the business, even if every one of your clients pays on time.

Ignoring Late Payments

So we’re talked a lot about late payments in the past, and we will continue to do so for years. Late payments are the bane of businesses large and small. A staggering 90% of small businesses experience late payments every year, with 32% of them being paid over a month late. But as well as being frustrating, late payments from customers can cause serious cash flow problems for your business. For small and medium businesses owners it often means your salary gets delayed, along with your employees salary, your suppliers and any other due payments. This puts a strain on not only your business finances and relationships, but your personal ones too. In fact, 2% of SME’s fail simply because of the strain this causes. Late payments can cause a lot of cash flow problems for a business, and the longer the payments are late (or the more they build up), the worse it gets. So the moral? Never, ever ignore a late payment!

Of course, sometimes things aren’t quite as cut and dried as this. But in some of these cases, getting some advice on how to handle your cash flow issues can be the first step towards solving them. For example, if you are having issues with unpaid invoices and high accounts receivable, then you can enlist our help in managing your debt collection efforts and get your cash flow back on track. For more information on correcting and maintaining your cash flow, get in touch with us today.