Cashflow. It’s the nemesis of virtually every business. It simply doesn’t matter what you sell and how much you sell it for unless you can go the final step of getting the money through the door. As clients nudge payment terms from 30 to 60 to 90 days and suppliers chase you for payment now, finding yourself as the zero liquidity piggy in the middle can be an uncomfortable place to be. But there is cash hiding in – or available to – your business… if you know how where to find it.
1. Compare costs
It’s easy to fall into the trap of paying what you always paid for supplier services and products without ever questioning how your terms can be improved. So whether cashflow is an issue or not, it’s good practice to periodically review what you’re paying for your supplies, utilities and more, and shopping around to see if you could improve things.
If you can find the same or better for less, then either make the decision to switch, or challenge your existing suppliers to do better…
2. Renegotiate terms with your suppliers
It can be a daunting thing, talking to trusted and long standing suppliers about the various ways you would like to make them a little worse off, which is why it’s worth doing your homework before you start. Knowing precisely what others are charging for the same or similar items in your market gives you a stronger negotiating hand.
Understand the outcome you want from the renegotiation. Is a cost reduction really what you need, or do the payment terms simply need to be brought in line with the ones you’re forced to accept from your clients?
Keep firmly in mind the essential outcomes and the non-negotiables. If they say ‘no’ to your initial proposal, what’s your fall back? There’s no point agreeing a deal that doesn’t solve anything.
Finally, keep the emotion in check and recognise this is effectively a dance. It may be one you both want to lead, but your supplier won’t want to lose your business so the chances are they’ll be up for some form of concession. And if you do ‘give in’ on one aspect, make sure you get something back in return.
3. Invoice discounting
Your invoices don’t have to be the equivalent of messages in bottles, where you just trust to luck that one day they’ll be paid. You could get most of the value of the invoice paid immediately when you use invoice finance or invoice discounting firms.
It’s a simple concept: you sign up with an invoice discounting service which might typically release 80%-90% of the invoice value to you when you raise it. You liaise with the customer as normal and, once they pay their invoice the finance firm will release the remainder of the value, minus a fee.
Yes, you pay for the service – but there’s potential to effectively eradicate your cashflow issues.
4. Invoice factoring
As far as you’ll be concerned, invoice factoring works almost the same as invoice discounting, with the exception that the factoring firm will be the ones chasing your clients for payment. That’s because invoice factoring effectively means you’re selling your invoices as an asset, which they then assume the responsibility for collecting.
5. Lease rather than buy
Whether it’s a car, a van, a piece of machinery or a suite of technology, leasing gives you certain flexibility that buying doesn’t. Take a works van, for example. Buy it new and you have an asset which starts depreciating in value the moment you drive it off the forecourt. And when it’s time to choose another van, you’ll face the hassle of selling it. Throughout its time with you, buying the van hits your cashflow because a) monthly payments will typically be higher and b) it’s easier to offset monthly rental costs against tax.
The only thing that might alter that position is if you expect the van to get such a pummelling during its working life, or cover such a high mileage, that you would be heavily penalised when returning it after the lease.
6. R&D funding
Suppose your business spends around £50,000 each year on research and development. Depending on your eligibility and whether you’re currently making a profit or loss, R&D tax credit claim could entitle you company up to between £12,000 and £16,000 in tax credits, reduced Corporation Tax liability or even cash back to the company.
Benefits also vary depending on whether you are a manufacturing business, and the size of your business (more or fewer than 500 staff, and more or less than a €100 million turnover or €86 million gross assets).
- So, if yours is a manufacturing business with a new product, you may be able to claim for a portion of the R&D that went into its creation
- If you’re not a manufacturer but have nevertheless created a unique process or service, you might be eligible for an R&D tax credit
- And if your R&D was directed towards past improvements in services, processes or products, you may qualify for tax relief
R&D tax credit rates are worth up to 33p for every £1 of qualifying expenditure and whilst some take the place of other forms of innovation grant funding, others can complement them. So potentially, you could enjoy the benefits of R&D tax credits and other research funding.
7. Peer and crowdfunding
Where the enterprise has the sort of growth potential to get investors excited, it’s never been easier to get financial backing providing you’re prepared to relinquish a stake in your business in return.
Crowdfunding tends to involve a broader pool of supporters who will offer more, smaller amounts of investment in return for lots of small equity stakes. Peer to peer funding will typically involve fewer investors (and often a single investor) who will offer greater investment and expect greater returns.
Better still, most of the work can be done online – so you don’t have to knock on doors to find the funding you need to help you out of the cashflow hole.
8. Business loans
It’s not always east for startups (or any other business, for that matter) to access traditional forms of business lending, but there are plenty of government backed schemes that can offer funding in the forms of loans, often with business advice and mentoring attached.
Naturally, a loan needs to be repaid, but the cash injection of (typically) up to £25,000 for startups could make a dramatic difference to cashflow.
9. Renegotiate with your creditors
It’s important to do this before small problems become big ones, because that enables you to keep a degree of control over the discussion and ensure you get a chance to speak with the actual creditors (as opposed to the people who do the debt collections for them).
Keep it factual. State the problem. Show the evidence and suggest a solution. The creditor doesn’t have to accept, but they’re likely to want to agree to a proposal which sees them get most of their money back sooner, than get less, later. Which is what’s likely to happen if you take the next step…
10. Company Voluntary Arrangement (CVA)
When you’ve tried everything else and cashflow remains critical a CVA could help you out of the hole without losing the business. A CVA (or an IVA if you’re a sole trader) is an agreement to pay an amount you can afford back to your creditors over an agreed period. It isn’t something you can arrange yourself; you need to do it via an insolvency practitioner and there some clearly defined rules surrounding it:
- Every director must agree to the CVA
- Creditors who account for at least 75% of the total debt must agree to it (your insolvency practitioner will contact them about this)
- You must stick to the agreed payment schedule
If the CVA can’t be agreed, or if you fail to meet the repayment terms established in the schedule, your company will face liquidation and winding up.
Don’t do nothing
Cashflow problems can have a curiously paralysing effect. But as the above options show, there’s money in your business. There’s money available for your business. And when every other avenue has been exhausted, there’s still help available if you find yourself in trouble.
You don’t have to accept cashflow problems as a way of life. Act now and unlock the money that’s available to your business.