Managing Cash Flow Before It Becomes a Crisis

Being on top of your cash coming in, utilisation and going out should be top priority

Cash flow problems rarely appear without warning.

There are often early signs:

• customers taking longer to pay
• suppliers demanding quicker settlement
• increasing use of overdrafts
• or a growing difficulty meeting monthly commitments etc

The difficulty is that business owners are often so occupied with daily operations that these signs receive attention only when the situation becomes uncomfortable.

1. Recognise the Warning Signs

Watch for (warning signs):

• Regularly using personal money to fund business expenditure.
• Relying on credit to pay existing credit commitments.
• Increasing overdue supplier balances.
• Delaying tax payments.
• Having insufficient money to purchase stock for confirmed orders.

These are signals to review the business finances.

How many of these are happening in your business currently?

2. Take Control of Receivables

Prepare a list of outstanding customer invoices.

Contact customers before payment dates, follow up promptly on overdue balances and investigate disputed invoices.

A good relationship with customers does not mean avoiding conversations about money.

3. Negotiate Sensible Payment Arrangements

Where appropriate, discuss supplier payment terms.

A longer payment period may provide breathing space, but do not promise payment dates that the business cannot realistically meet.

4. Consider Appropriate Finance

Sometimes a business experiences temporary pressure because it has grown or is growing.

For example, a wholesaler may need to purchase additional inventory before receiving payment from retailers.

• it is usually temporary (optional)
• focused on a particular season, period or circumstance not perpetual
• it is under control and managed well

Working capital finance, trade finance or invoice finance may help support this cycle.

However, if the underlying problem is that the business consistently spends more than it earns, additional borrowing may increase the difficulty.

Understand the cause before choosing the solution.

5. Introduce Financial Discipline

Set aside time every week to review bank balances, expected receipts and upcoming payments.

Do not rely entirely on what your bank balance tells you today. It does not show all the commitments that are approaching.

Financial difficulties become easier to manage when they are identified early.

3 Actions You Can Take Today

1. List all outstanding invoices.
2. Review payments due over the next 30 days.
3. Identify one cash flow risk and decide how to address it. There is always something you can do, if identified early. Educate yourself and your team.

Good financial management is about being prepared enough to respond confidently when things change and not about being perfect and right. It is about knowing what to do when something happens or how to learn about what to do.

Disclaimer: This article is for general information and educational purposes only and does not constitute financial advice. Finance is subject to eligibility and lender terms. Seek independent professional advice where appropriate.