Managing cash flow: tips for improving liquidity in your business 

Managing Cash Flow: Tips for Improving Liquidity in Your Business

Xeinadin Group



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Company insolvencies have rocketed in the UK since the end of the pandemic. With the lifting of government support schemes designed to prevent a second epidemic of business failures while COVID-19 shut everything down, company liquidations alone rose by 50% last year.  

The main culprit has been cash flow pressures. It hasn’t just been a case of businesses finding the coffers bare after all the disruption caused by coronavirus. The biggest problem has been the fact that the ‘great reopening’ coincided with soaring inflation. Thousands of businesses continue to struggle with basic liquidity as a result. Or in other words, having enough in the bank at any one time to pay your bills. 

The road from the red back into the black is not always just a case of cutting costs and trying to increase revenues. Sometimes the problem isn’t as simple as spending too much or not turning over enough. It can often be a structural issue concerning when you have money coming into the business versus when it is due to go out. 

You may be owed significant sums from customers due next month. But how does that help you with bills that you need to pay today? And when everyone is facing the same difficulties, what if those customers end up not paying on time? That’s how insolvency spreads like a virus. 

Good cash flow practices and strong liquidity can innoculate your business against contagion. Here’s how to boost your immunity. 

Plan for the unknown

Every business has regular, predictable outgoings that it is obliged to meet. Assuming your turnover is in good health, these are easy to plan for because they are known and anticipated. But what really hurts organisations in terms of cash flow is sudden unexpected costs. Like the repair bill for an IT or equipment outage.  

If you don’t have much in the way of cash reserves, things like this can really throw you off kilter. And leave you struggling to meet essential regular payments in the near future. It’s therefore always good practice to expect the unexpected and leave a reasonable cash buffer in your accounts. 

Review invoicing practices

A common reason why otherwise healthy-looking businesses get themselves into financial difficulties is because they simply are not on the ball with their invoicing. They don’t send invoices promptly, they don’t track or chase overdue payments, and they make mistakes with invoicing that lead to payment delays. As suggested already, money you are owed cannot pay your bills until you receive it. Which makes efficient invoicing crucial. Nowadays, the best way to get invoicing in order to use automated software that manages it all for you. 

Stand up for yourself on payment terms

A sad fact of the modern business world we live in is that a lot of companies do not pay their suppliers when they have agreed to. The ‘crisis’ in late payments is worth an estimated £23.6bn in overdue and unpaid invoices, which adds up to major cash flow problems for a lot of businesses. 

Some of that is no doubt a symptom of tough economic conditions. But a lot of it is just down to poor and unscrupulous practice. 

If a customer isn’t paying you on time, be prepared to stand up for yourself – the law is on your side, and you can claim late payment fees. Also, take a view about whether it is in your best interests to continue working with persistent late payers. More generally, review the agreements you have in place and take any opportunity to renegotiate payment terms in your favour, so invoices are paid asap after you send them. 

Cut your reliance on credit

Debt is a cash flow killer. Finance and credit offer easy wins when you do find yourself overstretched and need to keep up with payment obligations. But then you just add to the burden. One of the best ways to make your cash flow healthier is to prioritise clearing debts or else look to restructure payments into something more manageable. 

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