Cash flow is the lifeblood of small businesses, allowing them to pay bills, operate effectively on a day-to-day basis and capitalise on opportunities to grow. 2020 has been an incredibly difficult year for millions of businesses for all sorts of reasons, but one of the biggest challenges they have faced is maintaining a healthy level of cash flow. Incomes for businesses across a broad range of industries have plummeted, while costs, in many cases, have remained largely the same. The result is that many businesses are now starved of cash and have been pushed to the brink of insolvency.
With that in mind, these are our tips to help small businesses get their cash flow back on track in 2021 and enjoy a productive and, dare we say, pandemic-free latter part of the year.
1. Explore your funding options
You might think extra debt is the last thing you want to take on right now, but in the right circumstances, even a loan from a short-term lender like Wonga could help you to buy supplies or pay for unexpected expenses. However, over the longer-term, you’d be much better served by exploring funding options such as invoice finance and merchant cash advances. They will allow you to free up quick cash that you can use to get your business back on track. One of the big benefits of both of these types of funding is that you do not need impeccable financials or a perfect credit record to apply.
2. Keep purchases to a minimum
When times are hard, you want to keep as much cash as you possibly can in your business. While some expenses may be unavoidable, if you have the option, paying in instalments and even leasing supplies and equipment rather than buying them outright can help to improve your cash flow position. As an added bonus, lease payments are a business expense that will reduce your tax bill at the end of the year.
3. Encourage customers to pay quickly
Late payments are the scourge of the UK’s small business economy, with small businesses owed an average of £6,142 mostly by larger firms that do not pay for goods and services on time. While you cannot force a customer to make a payment within your terms, you can encourage them to do so by introducing early payment discounts, charging interest on late payments, sending out prompt and accurate invoices and taking consistent and concerted collections action.
4.Credit check new customers
Bizarrely, carrying out a credit check on customers that businesses intend to offer credit to is not something that many do as standard. If you have been approached by a new customer who will not be paying for goods and services upfront, you must conduct a credit check to reduce the risk of late and nonpayments. If a prospective customer has missed payments, defaults and CCJs on their credit record, then think long and hard about whether that’s the sort of business you really want to be working with.