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Five Top Tips for SMEs to Avoid Insolvency

When it comes to running a small business, maintaining a steady cash flow is vital during these times of economic uncertainty.  If you’re a small business owner and you want to avoid insolvency, here are some signs to look out for that could indicate that you have a cash flow issue.

Bills Building Up

If you dread receiving bills or are constantly making late payments, you may have a cash flow problem that you need to pay attention to.  This is why it’s essential to always be aware of your business cash flow situation and know what steps you could take in order to prevent it developing into a serious problem.   Try negotiating with your creditors in order to ease the situation.  If HMRC is a creditor then negotiating a little breathing space will help you to avoid measures being taken against your company.

All Systems Go

If your administrative systems are inefficient then it makes it difficult to see the big picture as far as your business dealings are concerned and this can easily lead to late payments being made or even fines for failing to file statutory returns and accounts.  You need to be aware of the following:

  • How your business operates, including the financial facts and figures.
  • How much is owed to your business by your own clients or customers.
  • Likely estimates for cash flow in the forthcoming months.

Reliable data will enable you to identify where your business could be losing money and take positive action to remedy this, especially when it comes to credit control.  Efficient systems and procedures will allow you to track how long each client takes to pay and enable you to ensure that agreed credit limits are not exceeded and chase overdue accounts before they have an irreversible effect on your business finances.

Stock Problems

If you’re finding it difficult to purchase stock to fulfil orders due to late payments to your suppliers you’ll need to take steps to improve the situation.  Try to renegotiate the payment terms if possible.

If you have too much stock this can represent a real drain on your working capital and you may find yourself offering customers a discount price to shift the goods quickly.  However, you will need to be aware of the effect this could have on your ROI and consequently on your cash flow.

Credit Where Credit’s Due

If you have insufficient sources of credit, it’s important not to fall into the trap of using a wide range of suppliers to obtain the credit you need to keep your business operating on a day to day basis.  Letting an accountant or licensed insolvency practitioner examine your business cash flow needs could lead to identifying a solution that will help you avoid insolvency.  The solution could be as simple as selling off some of your underused assets or factoring out debtor invoices if they are generally paid on time in order to obtain some cash in the short term.

Debtors Out of Control?

Many businesses struggle to maintain cash flow as a result of consistent late payments of debtor invoices.  Accessing an Aged Debtors’ Report will enable you to identify the worst offenders or any emerging patterns with customers who, until recently, have been in the habit of paying promptly.  If most of your debtors exceed their agreed terms for payments, then introducing stricter controls should allow you to rectify the situation.