How to Avoid Cashflow Problems

Cashflow problems are the main reason why more than 70% of UK businesses go under in their first year. Although this statistic is fairly shocking, the reassuring fact is that there is a lot that companies can do to manage their cashflow effectively.

We have put together our top tips to help you avoid cashflow problems and become a business success story.

1. Always run credit checks on companies that you do business with

Many people forget or think that it’s not important to vet companies before doing business with them. However, doing so is an important method of avoiding cashflow related problems further down the road.

If you have not checked up on a potential new client, you expose yourself to the risk of not being paid.

There are a number of ways to run credit checks such as ordering an online credit rating from credit reference agencies or by joining our cashflow management service to check your potential customer’s payment record and encourage prompt payment.

Find out more about our cashflow management service

2. Encourage prompt payment

You will have to pay your suppliers even if you have not been paid by your customers. Encouraging your customers to pay you promptly is therefore an effective way to avoid cashflow problems.

Try offering favourable payment terms to people who pay early and refer to the Late Payment of Commercial Debts (Interest) Act of 1998 on your invoices. This legislation allows companies to charge interest on overdue amounts.

3. Manage your budget carefully

It might sound obvious but good budget management is a key step to good cashflow management. Do not be tempted to spend money on promotional activity that has not been accounted for in your marketing plan.

Before you do allocate funds, make sure you know what the return on investment is likely to be and ensure that you can afford to spend the money in question.

4. Manage your accounts carefully

Do you know who owes you what and when payment is due? Keeping an invoice book detailing when invoices were sent out and to whom, as well when they were paid is a simple yet effective way of keeping on top of your finances and avoiding cashflow problems.