Companies of all sizes in all corporate sectors can experience cash flow problems. Cash flow is undeniably the lifeblood of a successful business. While the value of your company’s assets, your balance sheet and annual profit performance are all vital measures of your business’s health, cash flow determines the firm’s ability or inability to pay debts on time. Whether a business debts are bank loans, company credit cards, or credit accounts with customers and suppliers, successful management of monthly debt repayments is the core measure of your company’s solvency.
When your cash flow is interrupted, even temporarily, often debt repayments to your creditors are the first sign something is wrong. A simple cash flow problem definition is when a company does not have sufficient money in the bank to cover the day-to-day costs of running the business. Understanding the reasons behind cash flow problems is the first step in tackling and resolving the issues.
Several factors can cause cash flow problems. The most common example is late or defaulted payments by customers that owe your business money. Effective credit management is a key driver of financial success for any business.
By closely managing customer credit accounts and acting swiftly to recover outstanding debts, you can reduce the likelihood of late payers affecting your own company’s cash flow. Firmly establishing your business’s own debt recovery procedures, or engaging a debt collection agency, makes sound business sense – especially in difficult economic times.
Conducting formal credit checks on all new customers – both corporate and personal – can give you confidence about their credit standing and help determine whether to extend a line of credit, and if so, what terms to apply.
More innovative and positive solutions might include offering discount terms to your debtors for prompt settlement of invoices, like a 5% discount for settlement within seven days. This may not be appropriate for all businesses, but a trial can indicate whether early payment offers are feasible.
If you require any advice or someone to review your company’s financial position then please speak to Bridgestones as receiving prompt advice and going through the company’s options is crucial in resolving your company’s cash flow problems before they spiral out of control.
