How to manage cash shortfalls

Lack of cash flow is a common reason for businesses to fail. Equip yourself with the right information to help your business succeed. You need to do what you can to ensure you have sufficient available funds for stock holdings and daily expenses pending receipt of cash from the issue of client invoices.

Completing Cash Flow Budget forecasts can assist to determine your peak cash funding requirements, which will help you manage your cash flow.

Short-term finance

The first step is to manage your cash-flow situation in the short-term is to consider if you have enough cash to keep your business going. You can do this by determining your peak cash funding requirements and consider applying for a lending facility such as an Overdraft or Business Line of Credit. Another option is to consider a business credit card to pay for day-to-day or medium term expenses. A credit card may also be a good option to have on hand for emergencies or during quieter periods.

Review procedures

To help prevent cash shortfalls review your payment procedures. For incoming payments you could consider:

• Invoice as soon as possible, follow up as soon as money doesn’t arrive
• Explain terms to clients up front
• Ensure you have a rigorous credit policy in place
• Ask for a percentage of payment in advance. For example, you could consider asking 50% of a large transaction in advance.

For outgoing payments you could consider:

• Holding off from making payments to suppliers until the due date
• Asking suppliers for a grace period if you are needing cash
• Using a credit card for day-to-day expenses and understand your credit card’s interest free period.

Review your expenses

• Review and update your cash flow budget to ensure you understand how much money is coming in and going out on a monthly basis, and to ensure you are not spending unnecessarily
• Sell stock and unnecessary equipment
• Do not take unnecessary money out of the business while its cash flow is limited
• Opting to finance the purchase of new machinery, by way of a lease or hire-purchase, rather than buying outright
• Reducing overheads. For example, reduce travel costs and have meetings over the phone, rather than face-to-face.

Give your business a financial health check

Talk with your professional adviser about giving your business a financial health check. At Heritage we have a full range of business products and services to assist your business with both short and long term finance, coupled with transactional, payroll and creditor payment solutions.