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Three steps to fixing cash flow problems

Posted: November 24, 2017

There are three basic causes of low cash flow: low sales, high expenses and delays in collecting money that is owed.

All these factors are troublesome, but can be fixed. Marketing, promotion and offers can increases sales, expenses can be cut, and systems can be improved to collect money owing on outstanding invoices. Here are five other matters to consider:

1. Prepare for slow periods

Many businesses have inconsistent trading patterns. Some months, income is high and in other months it falls. A low cash flow business needs a plan to deal with the problem. This could be in the form of a flash sale, or working with creditors to delay payments. Hiring better sales personnel may also help.

2. Take action ASAP

It can take time to fix low cash flow issues, and in the meantime, a business must continue to pay wages and expenses. The worst position is to be idle and not tackle cash flow issues.

3. Consider bridging finance

Once a sound business plan has been actioned to fix low cash flow, a short-term bridging loan can be used to raise the capital to keep a business trading until the plan is fully implemented.

A bridging loan can also be used to purchase stock available at discount rates for bulk purchases. As long as the stock is high-demand items, their sale can be used to repay the bridging loan.

A bridging finance lender will require an asset, usually property, to act as security for the loan, and needs to be convinced that repayment funds will be available before the end of the loan period.