Why cash flow issues are inhibiting small firms

Cash flow issues can significantly hinder small businesses if they are not carefully managed, especially during the first years of trading.

For those operating on tight margins, even one missed or delayed payment can cause a business to collapse.

Of businesses that do cease trading, more than half remain profitable though, as the issues surround their cash flow and not being able to cover costs, rather than whether goods and services are in demand.

Modern technology can provide some welcome respite from financial management issues when used in the right way, helping in part to remove aspects of human error that can occur when accounting.

The key is for businesses to ensure that all invoices are accurate and delivered at the earliest opportunity – this means customers have more than adequate time to cover payments or to flag any outstanding issues.

Delayed payments – a practice that continues to plague small businesses – are often caused by late or incorrect invoicing, making it vital to check all information.

A European Payment Report suggests that 55% of British firms feel they face unfavourable payment terms while 42% suggest it limits their ability to hire staff.

At the same time, three quarters of small firms have also voiced concerns that new government late payment legislation will not bring the desired results.

Late payments make it hard to adequately predict cash flow yet half of British businesses have said they pay their suppliers late – 5% even revealed they pay more than half of their bills late.

It is estimated that more than £250 billion of small business turnover is locked up in late payments and recent studies have also highlighted its impact on the mental health of business owners.

Invoice financing can help firms to overcome such issues in the short term, while a number of alternative finance options also exist.

However it’s not always possible to find solutions and businesses should constantly review their practices to see if improvements can be made – an independent business review can shed new light on proceedings and help to find more practical approaches to work.

By Phil Smith


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