Managing your cash flow (7 of 7)

When Cash Runs Short…..

No matter how successful your business is in securing orders or increasing profit margins if it is unable to collect payment from its customers it will ultimately go out of business.

Do you have a robust credit control system in place?

Are your major customers paying you on the agreed credit terms?

Do you manage and monitor your cash flow?

Do you have sufficient cash/finance available to meet your on-going commitments?

If not, you have or will soon run out of cash which creates pressure on the business. Your difficulty in collecting money from your customers will have an impact on your ability to continue to trade normally.

This will be evidenced in various ways. You may have difficulty paying your suppliers on time, you may miss the deadline to pay your PAYE or VAT and ultimately you may not have sufficient funds to pay your wages. This also takes valuable management time away from actually running the business to resolve the issues.

If you don’t have sufficient cash to pay your current bills what should you do?

Carry out a review of your short and longer term cashflow requirements to identify the impact this will have on your business.

Can you pay your bills as they fall due?
No?

Are you confident that the business will be able to do so in the foreseeable future?
No?

Take early advice by speaking to your accountant or an insolvency practitioner to discuss the options open to the business. This may include any or all of the following:-

Considering whether you have access to short term finance or funding to see you through the period when cashflow is tight.

Speaking to a supplier at an early point if you are unable to pay them on their due date, to seek an extension to the payment terms. You are more likely to get a favourable response if you do so before it becomes overdue.

Seeking an agreement with HM Revenue & Customs to pay PAYE and/or VAT over an extended time. This is known as a “time to pay” arrangement.

Speaking to your bank or financier to obtain or extend your overdraft facility in the short term or seek a “payment holiday” for a loan if this is available.

Consideration of other forms of finance, such as invoice discounting or asset-based lending.

Speaking to your solicitor or an insolvency practitioner to understand the legal implications on you of continuing to trade whilst the business is unable to pay its bills when they fall due.

If you do nothing your suppliers will soon take their own recovery action which could lead to any or all of the following actions being taken.

Putting your future supplies on stop

Seeking recovery of the goods they have delivered that remain unpaid

Taking legal action for recovery of their debt which could involve:-

• The issue of a statutory demand
• A County Court judgment being secured against the business
• A Court appointed enforcement officer (formerly bailiffs) attending the premises to seize assets.

Or in the worst case, the winding up of the business…..hence the need to deal with matters at an early stage

For more information on dealing with cash flow pressures contact Paul Davies on 01489 550480.