Expert Advice

Cash Flow is key to unlocking investment capital

Leading independent invoice financier RIMMER reports on the importance of cash flow

As the global economic slowdown continues despite some indications, a potential end may be in sight, there is no denying CBI claims that the waters could remain stormy for UK businesses for some time.

The stalling worldwide economy is making it increasingly important that businesses, regardless of their size or bank balance, unlock all the working capital available to them and work to manage it as carefully as possible.

In the current economic climate, effective cash flow management is vital. In order to survive, businesses must ensure they have sufficient liquidity to meet their obligations as well as work hard to minimise any potential cash shortfalls.

As volatility within the financial markets continues, those firms with both a consistent cash flow and sufficient funds on their balance sheet will be seen as the most prudent, and will be in the best position to make sound investments to future proof their business.

With the CBI reporting company inward investment down 12.4% on last year, yet an expected economic recovery due next year, the availability of cash for small and medium-sized businesses could mean make or break for many firms.

We are urging all firms to consider their funding options now to ensure they have the opportunity to grow once the financial forecast improves. With bank finance levels contracting, it is vital that firms do not wait for banks to reduce or withdraw funding before casting their net further and wider to improve cash flow levels and safeguard the bottom line.

For those businesses wanting to make a change in order to improve their cash flow and be able to invest in their business moving forward, alternative finance, and in particular invoice finance, is a really viable option.

By releasing cash tied up in unpaid customer invoices, firms are able to meet creditor payments such as PAYE and taxes, as well as the more obvious payments to suppliers and of course be able to foot the wage bill. Increasing numbers of businesses are waking up to invoice finance as a real alternative source of funding which improves cash flow. In the last year alone, more than 48,000 small businesses in the UK have used invoice finance to fund their business and improve their cash flow with the industry advancing in excess of some £15 billion.

Having an invoice finance facility in place will provide businesses with security and peace of mind. It ensures they have sufficient cash flow and the appropriate level of funding in order that when the time comes they can invest in their business with confidence.

Those owners and managers that have fortified their finances will undoubtedly reap the rewards and will be in a much better position to make the most of the predicted economic growth next year. In addition to having an invoice facility in place, there are many steps firms can take to improve cash flow and unlock the key to investing in their business. The following good practice credit management top tips will help:

Always credit check customers
New customers are always exciting but ensure they are creditworthy before you commit time and resources to working with them, and agree payment terms in advance so every party knows where they stand. This will also work as an insurance for you if anything should happen later or if the customer becomes a bad debtor.

Invoice promptly
Don’t delay sending invoices out. Make sure all your invoices are correct to ensure your customers have no excuse not
to pay.

Be strict with credit control
Make sure you have a strong process for chasing up your invoices – issuing monthly statements and reminder letters if payments are late.

Know your customers
Are customers acting differently? Are they suddenly hard to get hold of? Keep an eye on customers’ payment trends and spot potential problems before they become major issues – forewarned is forearmed.

Take stock
Holding stock means your cash is tied up so plan ahead and keep stock levels to a minimum.

Manage suppliers
Shop around for better deals and negotiate longer credit terms (you don’t get if you don’t ask!)

Be realistic
Don’t take on financial commitments that you can’t afford.

Protect your business
In business, it pays to be prepared. Opting for bad debt protection acts as a safeguard against unpaid customer invoices ensuring you still get paid even if a customer becomes insolvent.

In today’s market, more than ever cash flow is the lifeblood of businesses.

Effective cash flow management is about having a watertight system in place to effectively monitor and deal with potential bottlenecks and reduce their impact. It ensures businesses are equipped to survive whatever challenges come
their way.

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