A healthy cash flow is fuel to your business. Whether your sales increase or decrease, you must have enough cash to meet business operation overheads. Thorough planning around cash flow management is enjoined. Despite careful planning, many entrepreneurs struggle to have a smooth cash flow. Your business may grind to a halt if the cash supply is not sufficient.

Cash flow problems could be the result of several causes. It is crucial to put your finger on the exact cause so your business does not struggle with the same cause again. This blog discusses some reasons why many businesses face cash flow problems and what they can do about payment delays.

The most common cash flow issues and ways to deal with them

Here are the most common causes of cash flow problems, along with solutions:

• Late payments from customers

This will not be an issue if you accept payments only in cash, but some businesses have a culture of providing their goods and services on credit. It means their clients have some time to make payments. It depends on your business policy how much time you would provide them to discharge outstanding dues. Not all customers pay their invoices on time. Unfortunately, it will also affect your ability to pay your suppliers. Payment delays result in late payment fees and charges.

Here is how to solve this problem:

• Payment terms should be set clearly. Make sure that your clients pay you on time. Charge late payment fees to those who miss the due date.
• Start sending reminders to your audience. Make sure that you start doing it a couple of days before. This way, they will feel compelled to clear obligations on time.
• Those who pay before the due date should be incentivized. For instance, you could offer a 5% to 10% discount on the total bill if payment is made on time. This will encourage others to clear the dues on time.
• Use automated invoice software. It will preclude you from experiencing the hassle of creating several invoices. Invoices are generated automatically, so you can focus on other essential tasks.

Payment delay is the most common cause. Make sure that you manage to receive payments on time, so your business does not get affected.

• Too much business debt

Sometimes, businesses get paid invoices on time, but the reason why they struggle with cash flow problems is that they owe too much debt. Business debt is expensive. Compared to personal loans, business loans carry high interest rates. If you have multiple business debts, of course, a large portion of your money will go towards debt payments. It means you will be left with little money to meet your business expenses. Here are the ways to deal with this problem:

• Do not borrow money in the name of your business if your existing debt has become a burden.
• In case of multiple debts, you can seek debt consolidation loans in the UK with bad credit. Consolidation is the best way to make payments easier.
• If consolidation is not approved, you should consider contacting a debt management company. The debt management company will negotiate with your lenders on your behalf so they can close the account by accepting less amount.

You should carefully keep monitoring your overall financial condition. Make sure you never owe debt more than your affordability.

• Excessive reliance on bad credit loans

Bad credit business loans are not difficult to apply for, and therefore, most entrepreneurs do not actually bother to have a good credit rating. Large business loans could be a bit challenging to have approved, but short-term business loans are actually much easier to get approved. They involve fewer formalities.

Unfortunately, you do not realise that bad credit business loans are quite expensive. Lenders would consider you highly risky borrowers as a result of a poor credit rating. In order to mitigate their risk, they will charge exorbitant interest rates.

Excessive reliance on bad credit loans will pose a threat to your cash flow. You will likely struggle to meet your business expenses. Here is how you can deal with this problem:

• You should try to improve your credit score. Having a good credit rating will help you qualify for affordable interest rates.
• In order to keep your credit rating in good condition, you should pay off all your bills on time.
• Keep credit utilisation ratio less than 30%. It is suggested not to carry a credit card balance at the time of using these loans.
• Focus on your debt-to-income ratio, too. Though it does not affect your credit rating, it influences lenders’ decisions.

Sometimes, you may need to rely on bad credit business loans with guaranteed approval in the UK. Make sure that you apply for these loans only when you are completely certain about your repaying capacity.

• Excessive overheads

Another cause of irregular cash flow is excessive overheads. They refer to business expenses that you meet every day. Cash flow is significantly impacted due to excessive overheads. The responsible business costs include rent, utilities and other fixed expenses. Here is what you should do:

• Monitor your expenses regularly. Identify areas where you can cut back on. For instance, you can reduce your rental amount by allowing your employees to work from home if possible.
• Try to renegotiate contracts with suppliers and service providers. They would be willing to work with you if negotiation brings some benefits to them, too.
• Track inventory and make a strategy to release stock on time, so cash is not blocked. You may need to rely on inventory management software.

Overheads could go up or down at any time. Make sure that you keep reviewing them periodically.

• Seasonal fluctuation

Seasonal businesses experience cash flow problems, too. When the business is flat, it becomes challenging for them to have enough cash to meet fixed expenses. If your business experiences seasonal highs and lows, you should consider the following strategies to ensure that your business operations are not affected by cash flow problems:

• During the peak season, you should stash away some money and employ it when the business is down.
• Introduce new product lines. Make sure new products or services are in demand throughout the year.
• Analyse data and come up with a strategy to deal with cash flow problems during that period.

The bottom line

Cash flow problems arise due to many causes, and the most common ones are excessive overhead costs, too much business debt, excessive reliance on bad credit loans, poor financing, and slow-paying customers.