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Key solutions for SME cash flow problems

Cash flow problems aren’t uncommon for small businesses, particularly when they’re first starting out. But if you fail to get ahead of these sorts of problems, they can quickly become unmanageable, leaving your business in a hole that’s very difficult to get out of. Want to know more about solving cash flow problems for small business? We’ve put together a guide to some of the best cash flow solutions.

Cash flow problems

Issues with cash flow can be problematic for a range of reasons. A healthy cash flow is symptomatic of a healthy company, ensuring that you have enough cash to cover any potential difficulties and unexpected expenses that may arise throughout the normal course of business. However, business cash flow problems can put your finances in a precarious position, as your business could end up essentially subsisting on a day to day basis. In short, cash flow problems can prove to be an existential threat to your business.

6 methods of solving cash flow problems

Keeping cash flowing into your business’s accounts is crucial. Fortunately, there are a broad range of cash flow solutions that you can implement to stop late payments and cash flow problems before they start threatening your business. Here’s six methods of solving cash flow problems you could try with your own business:

  1. Ensure you’re using cash flow forecasting – Cash flow forecasting can give you a great insight into your company’s future cash flow. You can find out which months you’ll be seeing a deficit and which months you may have a surplus, which gives you all the information you need to plan your finances better. For instance, if your cash flow forecasts indicate that cash flow may be about to tighten up, you can act immediately to cut down on your business expenses to minimize the resulting cash flow problems.

  2. Organize your books with an accounting system – One of the key methods of solving cash flow problems is to ensure that your books are as organised as possible. If your accounts aren’t up to scratch, errors could creep into your billing process and you could end up failing to invoice for completed work. Using accounting software like Xero or QuickBooks is the best way to keep your books in order.

  3. Reduce your business overheads – Overheads can be a significant drain on your business’s resources, particularly if you’re paying an unnecessarily high amount. By reducing your overheads, you can free up cash that can be used to counter business cash flow problems. Think about reducing your rent by moving into cheaper premises or embracing remote working. You could also outsource specific duties like tax preparation and accounting to avoid spending money on costly full-time employees.

  4. Apply for a business line of credit – As a last resort, applying for a small business line of credit could be a potential cash flow solution. A line of credit is essentially a type of loan that you can keep reusing and repaying, as long as you keep making payments on time and don’t exceed your credit limit. It can be a great option to use as a safety net if you encounter any unexpected business cash flow problems. However, it’s important to remember that this won’t solve any of the underlying problems that led to your business’s cash flow issues in the first place.

  5. Try alternative solutions like invoice factoring – Of course, there are lots of other short-term cash flow solutions that you can use to stabilise your cash flow. Invoice factoring is a type of invoice finance wherein you sell your outstanding invoices to third parties. Because you’ll receive the bulk (around 90%) of the invoice amount immediately, this can be an excellent option for businesses that need a short-term cash flow injection. 

  6. Encourage your clients to pay faster – Solving cash flow problems for small business can be made much easier if clients pay on time and in full. Using a payment collection system like GoCardless allows your customers to pay with Direct Debit, ensuring that you receive payment automatically.

Final word

Business cash flow problems are challenging, but they’re not insurmountable. By identifying the issues and developing cash flow solutions, you can ensure that your business is in the best possible position to achieve success. 

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GoCardless (company registration number 07495895) is authorised by the Financial Conduct Authority under the Payment Services Regulations 2017, registration number 597190, for the provision of payment services. GoCardless SAS (23-25 Avenue Mac-Mahon, Paris, 75017, France), an affiliate of GoCardless Ltd (company registration number 834 422 180, R.C.S. PARIS), is authorised by the ACPR (French Prudential Supervision and Resolution Authority), Bank Code (CIB) 17118, for the provision of payment services.