Cash-flow Control: Tightening the Reigns for Stability amidst Upheaval
2 weeks ago by Jack Evangelides

Cash-flow Control: Tightening the Reigns for Stability amidst Upheaval

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Economic upheaval and financial turmoil are two facts that will always remain inevitable for every business; however, it is those who can see out the storm that prosper. Arguably, the most important factor for every business to stay on top and deal with external financial pressures is a business`s cash-flow. Your cash-flow needs to be airtight, robust, forward-thinking and use statistical data and current automated technologies to avoid succumbing to burdens. So what dangers does poor cash-flow management hold? And how can you tighten the reigns for stability?

The Bigger They Area

It is a regular occurrence to see business managers struggle to manage a business`s cash-flow, to get on top of it and make sure they are prepared for anything that may come their way. For all industries, B2B and B2C, business is changing drastically, the way we use data and technology, consumer behaviour and foreign policies affecting global business. Therefore, it is pivotal to try and get ahead of the changes with a secure financial plan and strict cash-flow management. In the last few years, there has been a significant amount of large businesses filing for bankruptcy, going into administration and witnessing their profits plunge. Recently, Forever 21 filed for Chapter 11 bankruptcy protection in the USA after failing to adapt to a change in consumer behaviour to a more 'online market`. Other big businesses that have been affected are the likes of Thomas Cook and Toys R` Us, two companies that once dominated in their industries.

The Rise of the Late Payment Culture

Late payments are a key factor that causes cash-flow disturbance and, especially for small and medium enterprises (SMEs), can have drastic implications. As a supplier you need to have strict rules in place in regards to payments, otherwise, you may end up doing business with a company that takes too long to pay, causing a ripple effect onto your cash-flow and your business. Moreover, when supplying bigger businesses, where shorter payment terms don`t really have an effect on them, small businesses need to keep them on a tight rein and have very clear and well-communicated mutually agreed credit terms in place.

Late payments have significantly risen, with estimates of £2.5 billion being lost annually to late payers in the UK alone and, significantly, the UK experiences an estimate of over 50,000 businesses closing because of late payments or defaults. When you are planning your cash-flow, it is important to account for late payments now more than ever.

Keeping up with the Cash-flow

What can business managers do to keep a sturdy cash-flow and avoid economic downturns?

  1. Strict Policy: When it comes to extending credit, you need to make sure that the amount of credit you provide and the turnaround time of payment fits nicely into your cash-flow structure. For example, if you provide each company with 'X` amount of credit and they all have a standard repayment time of 'Y` months, then your cash-flow may encounter problems especially if unexpected downfalls occur. It would be best practice to do your due diligence on each company that you extend credit to, and from this, use the data to set limits on the amount of credit and payment duration. With a good company credit report you can assess the amount of risk that a company poses, therefore allowing you to freely adjust your policy accordingly. For example, if a company credit report depicts company 'Z` to have a high-risk score and a history of late payments, you would automatically know to have very strict credit extension policies with this company if you were to extend credit at all. It is also important to take into account the size of the companies and how much credit may be needed, with a company credit report, you are sure to mitigate risks through detailed insights to help with policy control.

  2. Late Payment Penalties: As much as you can do to avoid late payments, there is no guarantee that it is not going to happen. Therefore, the best thing you can do is be prepared. By setting late payment penalties your client will want to avoid them and, in most cases, adhere to the set repayment time, nonetheless, if the client does not follow protocol then your penalties set in place can make up for any inconveniences that your business has suffered. The EU has a clear Late Payment Directive giving indications of the amount of statutory interest EU companies can charge and the UK currently has the same rates.

  3. Extending your own Payables: Payment terms work both ways. The better your company is at paying back on time, having a steady income and a good cash flow, the more likely you will get favourable repayment durations. Having flexibility here can further strengthen your position in instigating business, knowing when and how much to pay to take any pressure, from short-term payments, off.

  4. Technology is your Friend: Utilise data, technology and automated systems to your advantage. Whether it is to organise your cash-flow, analysis predictions for your company, automated risk scoring systems, company monitoring and a lot more everyday technology and data that we come across. If a company can utilise the perks of data and technology then mitigating risks becomes a whole lot easier.

Bespoke Business Credit Reports

As aforementioned, with a good business credit report you can visually assess the risk of instigating business with another company and understand potential implications on your cash-flow. Credit reports can be used to create and amend payment policies and help keep your finances on track. You can even now order them directly through your CRM (Customer Relationship Management) software with customised applications which are often provided free of charge.

Cedar Rose has been providing unrivalled credit reports for over 20 years and can deliver them on a global level. With a Cedar Rose company credit report you will receive an algorithmic assessment of risk for the company in question, which can even provide a detailed score if a company`s financials are unavailable. We provide detailed assessments of the scale of a company, history of late payments and even give you the opportunity to rate a company`s payment, let the world know if they paid on time or if they paid late through our Trade Rate initiative. Additionally, to further bolster your cash-flow, you can add our monitoring feature, which means you will receive updated reports and highlights of changes made to a company that you monitored. Don`t succumb to surprises that can weigh down your cash-flow; Cedar Rose company credit reports can help you weather the storms ahead with confidence.

Written By Jack Evangelides, Marketing Assistant

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*** The sole purpose of the article above is to generate public discussion, it has no intention to constitute legal advice. ***

  • Cash-flow
  • Payment
  • Credit
  • Late Payment