Google’s top searched-for topics among small businesses in 2022 revealed that cash flow problems were among the biggest concerns.
This particular search term experienced a 136 per cent year-on-year increase compared to 2021. Coming in close behind were “business cash flow problems,” up by 120 per cent, and “cash flow issues,” up by 80 per cent.
This is not surprising given the economic malaise that has affected much of the world in recent times.
According to the Office for National Statistics, the UK avoided a technical recession last year, but growth was only 0.1 per cent in November 2021.
Inflation has also been high, particularly in key areas such as energy, leading to increased costs for businesses and late payments from customers grappling with their expenses.
Inflation also fell to 10.5 per cent in December from 10.7 per cent in November and 11.1 per cent in October.
Businesses are facing high prices in several key areas, particularly in energy. As a result, they not only experience more cash outflow each month but also have to manage customers who are delaying payments due to grappling with other expenses.
Cash flow problems can be challenging for businesses to manage and are one of the primary reasons for business failure in the UK. Therefore, it is crucial to have a plan in place to help maintain a healthy cash flow.
To improve cash flow, businesses can take the following steps:
- Improve their existing vendor and supplier contracts to accurately reflect and enforce late payment practices.
- Invest in professional invoicing tools and streamline the payment process with timely communication, clear terms, and automated reminders. Offering discounts for early payment can incentivize customers to pay sooner.
- Actively follow up on unpaid invoices as soon as possible. Contacting customers about their overdue payments quickly can prevent late payments from becoming too large of an issue or causing cash flow problems.
- Consider offering alternative payment options, such as more flexible payment plans or instalment plans for larger invoices. This may encourage customers to pay on time and make cash flow management easier for the business.
- Increase prices strategically, offering additional value or discounts over long-term commitments or extra services to help improve cash flow without significantly affecting customer volume or satisfaction.
- Track cash flows regularly and establish a cash reserve to avoid insolvency due to unexpected cash shortages caused by late payments or other financial losses.
- Tackle regular late payers by sending enforcement letters where outstanding debts are substantial and they have breached existing agreements.
If any businesses you work with are struggling with cash flow issues and/or their solvency, speak to our team for advice.