Keeping cashflow positive when growing

We have all heard stories about seemingly successful businesses closing down and wondered what has happened.

By Dave Beech, director, Adcroft Hilton

Often in these circumstances, the failure is blamed on ‘financial problems’, which tends to mean the business struggled to manage its cashflow.  

At its simplest, this means that the business has not managed to convert sales into cash quickly enough to generate enough money to pay its bills.

Ironically, growing businesses that seem to be successful can often be a victim of their own success.

As a business takes on larger orders for larger customers, payment terms tend to get longer, but the existing suppliers are unlikely to agree to extend credit terms as well as credit limits.

On top of that, costs such as wages, rent, utilities and tax have fixed payment dates.

What can you do as a business owner to keep your cashflow positive?

When working with a new customer, be very clear about your payment terms from the outset.

Include late payment charges in your credit terms, and apply them if payment is overdue. A bank will add late payment charges if your loan payment is late, so why shouldn’t you?

Set credit limits and stick to them - remember that the customer is effectively borrowing money from you by receiving goods on credit.

Never be ashamed of chasing payment - it is your money that you’re asking for, not a loan.

If a customer doesn’t stick to your payment terms, stop supplying them. Otherwise you risk supplying them for free, which is fine if you’re a charity, but not for a business.

If you are struggling with your business cashflow while waiting for customers to pay, you should consider taking advice on the options available.

You may be tempted to inject some cash personally, or via finance supported by a personal guarantee. However, be sure to take independent advice before taking this step as you might find that you end up funding your company’s debts personally. This removes one of the benefits of running a limited company.

The right advice, if taken early enough, can save a business and may avoid the director having to pay any of the creditors. Talking to a company such as Adcroft Hilton is not an admission of failure, it is the first step to working through financial stresses and coming out the other side with a stronger, more robust business. Having an initial conversation with us puts you under no obligation and will cost you nothing.