4 Tips for Keeping on Top of your Payments during Cashflow Crisis

Even if your company is making good profits on paper, running out of cash to pay your creditors can put you out of business.

Cashflow concerns are a common reality with 3 in 10 UK business owners acknowledging that growth is being held back by problems with cashflow.

The smaller the business, the higher are the chances of experiencing a cash flow crisis. Small businesses and sole traders, particularly, can find themselves being squeezed by creditors and ignored by debtors, with consequences that can threaten their ability to stay afloat.

If your business suffers from the occasional cash-flow crisis, here are 4 tips for how to keep on top of your payments when the going gets tough.

1/ Make a realistic assessment of your current status. When the phone is ringing off the hook with creditors clamoring for payment, you may be struggling to keep up and, as a result, lose sight of the overall picture. However, managing your cashflow is all about knowing exactly how much money you owe and to whom, as well as exactly who owes what to you.

Begin by going through your books and making a new list of all your current creditors and debtors. Write down their names, the amount owed and the date on which payment is due. If you don’t know the extent of the problem, you won’t be able to work out a viable solution.

2/ List your creditors in order of priority. After you’ve got a full list of who you owe money to, you need to prioritise who should be paid first. Start with any payments that cannot be delayed without putting your business at risk. Follow this with creditors who are likely to accept a part payment now with the rest following when your cash flow improves. Leave till last any creditors to whom you can realistically delay payment and who won’t affect your business too badly if they’re made to wait.

3/ Talk to your creditors. Most of your creditors will be tolerant of late payment if they’re convinced you’ve got a genuine cashflow crisis. However, if you don’t communicate the situation properly, they might feel you’re just taking them for a ride. After all, how do you feel when your calls or emails to your own debtors get ignored? If you’re open and upfront about the situation, you shouldn’t end up jeopardising your vital business relationships.

4/ Chase up any payments you are owed. Once you’ve reassured your creditors, it’s time to start following up more forcefully on outstanding invoices that are owing to your business. Even if payments aren’t due yet, some of your suppliers may be willing to pay early in exchange for an “early payment discount” and this may be worth offering to tide you over.

Weathering a cashflow crisis requires keeping a cool head and communicating effectively with both your creditors and your debtors. Things are rarely as bad as they seem at first, but don’t ignore the problem until it’s too late.

Author: Melanie writes financial tips and advice for SME’s struggling with cash flow and finance. For more see https://www.capiota.co.uk/

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  • Kelly Boros

    Reply Reply April 1, 2014

    For prioritizing your creditors – the same approach should be taken to prioritizing your business credit cards. Your cards should be organized by APR as well as by due date. Pay the highest rate credit cards first. Then if you have to make a smaller (or even the minimum balance) payment on a card, you’ll be charged at a lower interest rate – which can save you a little cash while extending your time to make the payment.

    • Craig

      Reply Reply April 1, 2014

      You are right Kelly, and the same approach applies to all forms of debt. Pay off your highest interest rate debt first.

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