Protecting Your Business From The Cashflow Crunch
Brace yourselves!
Businesses across the country are currently facing a huge cashflow crunch caused by the perfect storm of late payments, rising costs, soaring interest rates and an unstable economy.
Instances of late payment are crippling SMEs with almost half of all payments made to small businesses being paid late, costing UK businesses £684 million annually. The knock-on impact this has on businesses can be catastrophic, resulting in a major cashflow crunch.
The ripple effect this has on the economy is significant. With businesses now not having the cash needed flowing through they’ll miss growth opportunities, be unable to pay their own suppliers, may not be able to make payroll meaning their staff won’t be able to spend and in the worst cases actually lead to businesses failing.
However, these awful catastrophes could be avoided, which is the most frustrating thing.
If we take a group of businesses who received 60 to 80% of their invoices paid late in 2021 and reduced the late payment rate to 20%, then the average number of months these businesses would suffer from negative cashflow would reduce by 6%!
The instances of businesses being in negative cashflow are likely much higher than you think – over 90% of small businesses are in a negative cashflow at least one month per year!
It might feel as if everywhere we look its doom and gloom with the cost of living crisis gripping the country and talk of the UK on the brink of recession, however there is hope for surviving the cashflow crisis engulfing businesses.
Steps your business can take for better cashflow
With bad news everywhere we look right now it’s more important than ever to remain optimistic!
During tough economic times it’s critical that businesses are more resourceful and efficient and will help drive a behaviour change that will benefit us in the long run.
Here are some actionable steps you can take to help reduce the risk of negative cashflow.
Credit checking and monitoring
If you’re not already credit checking the companies you do business with you’re leaving yourself wide-open to the risk of cashflow problems in the near future. Definitely not a chance worth taking!
As a rule of thumb, you should be at least running a company credit check on your new customers and also monitoring for any changes to avoid potential cashflow pitfalls. A company credit check will give you a clear understanding of your customer, allow you to check their track record to see of any instances of late payment and provide a suitable credit limit to offer your customer that will help you mitigate credit risk.
Company credit reports are in a constant state of flux and will change depending on a host of factors impacting your customer and potentially their ability to pay their invoices on time so monitoring for changes to your customer’s credit reports is crucial for robust credit control.
Gathering as much intelligence as possible on your customer’s finances will help you make the most informed credit decisions. With Check-it you can even see losses suffered by your customers as a result of their own customers going into liquidation or administration, information not found in standard company credit reports.
Sign up for Know-it for free and get a free company credit report!
Proactive chasing payments
Businesses in the UK are spending a total of 56.4 million hours chasing overdue payments. That’s the equivalent to more than one working week on average for every business!
Imagine what else you could do in a week instead of chasing payments from your customers.
Tide have also found the average SME is typically chasing five outstanding invoices with £8,500 being owed to each business.
If businesses were more proactive by sending payment reminders just as invoices are due and began following a payment chasing process as soon as a payment is overdue then businesses would be paid quicker, meaning less time wasted chasing payments.
Chase-it makes chasing payments simple by automating the complete process. Easily connect your accountancy package to automatically schedule late payment emails, letters and SMS using fully customisable templates.
Plus, integrate with office 365 to send chasers from your own business mailbox!
Keep referring to an up-to-date sales ledger/aged debtors
Now to effectively chase payments once they’re overdue you need to have an up-to-date sales ledger.
You should be identifying all of your aged debtors, the companies who owe you money, and devising a plan from there by prioritising the invoices you need paid first. This may be the highest outstanding amount or the invoice you think will be paid quickest.
Negotiate with suppliers for more favourable payment terms and discounts on bulk orders
With costs soaring, interest rates spiking to combat inflation and a recession on the horizon, a healthy cashflow will be a priority for the majority of businesses across the country.
With this in mind, you may be in a strong position to negotiate more favourable payment terms and secure a discount on bulk orders if you pay cash or can guarantee an early payment.
Access alternative cashflow solutions
There are alternative cashflow solutions available to unlock cash trapped in your unpaid invoices.
Credit Insure-it is powered by Nimbla and allows you to instantly insure single invoices!
Single invoice insurance offers great protection to your business in the event your customer goes into liquidation or administration, shielding you from another potential cashflow catastrophe!
We hope these suggestions help your business survive the cashflow crunch gripping businesses across the country.
Know-it is the all-in-one credit control solution that will help mitigate credit risk, reduce debtor days and boost cashflow. Try it free for 30-days with a free business credit report or book a one-to-one demo see how Know-it can fit your business!
Lynne is the Founder and CEO of Know-it!
She is a passionate, driven and forward-thinking entrepreneur determined to help resolve the late payment crisis gripping SMEs.
Having worked within the credit management industry for over 27 years and ran UK leading commercial debt recovery specialists Darcey Quigley & Co for over 16 years, Know-it was devleoped to make credit control more accessilble for SMEs to help them effectively mitigate credit risk, reduce debtor days and boost cashflow!
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