What are your options for navigating cash flow concerns in a limited company?

Cash flow is the amount of cash coming into and going out of your company so depending on whether you have more entering the business than leaving it, you could be in a positive or negative cash flow position.

Operating with poor cash flow over an extended period can be troublesome for a limited company, as it restricts the activities that can be safely undertaken from a financial perspective.

There are a range of options to help you overcome cash flow difficulties, however, and grow your business. Cash availability is a crucial factor for the success of any limited company, and is more important than profit as a lack of cash can quickly lead to insolvency.

So what can cause cash flow problems for a business?

Common cash flow concerns for limited companies

• Poor debt collection processes – not collecting debts quickly enough or consistently employing robust collection methods
• Loss of an important customer – losing business from a key customer can cause a fast decline in cash availability
• Drop in sales – lowered income can jeopardise financial stability, especially if your outgoings remain the same 
• Slow invoicing – invoicing as soon as the work is complete encourages faster payment
• Unexpected bills – a large unexpected bill may create severe financial difficulty for a limited company
• Excessive operational costs – failing to monitor your outgoings and seek better deals increases the company’s vulnerability to cash shortages

How can you navigate your cash flow concerns?

Improving credit control

The ability to collect debts efficiently begins by employing strong credit control procedures, including credit-checking your customers, both new and existing. This helps to prevent bad debts from accumulating, but swift invoicing and consistently chasing overdue payments also help to achieve positive cash flow.

Management information and forecasting cash

Forecasting your cash needs over several months allows you to see where any shortfalls might occur, and take action to deal with them – by seeking funding, for example, or cost-cutting. Accurate cash forecasting relies on having access to meaningful management information and using management software is invaluable in this respect.

External funding

As a limited company, you have access to a broad range of alternative finance options that are flexible and can help you successfully navigate your cash flow concerns. As an example, merchant cash advances may be a solution if you’re a retailer as they’re based on the value of your card sales. Invoice finance is another type of external funding that provides regular inputs of cash during the month, reducing the likelihood of operating with negative cash flow.

Help with tax liabilities

HMRC runs a scheme that helps businesses to pay their tax arrears. You might be able to negotiate a Time to Pay (TTP) arrangement that offers you 3-6 months or more extra time to pay. The problem when you’re behind with tax payments is that it can leave you exposed to problems with HMRC, as they tend to act quickly in recovering outstanding balances.

Formal rescue measures

If poor cash flow has caused a financial decline to the point of insolvency, you may be able to help your limited company survive by entering into a formal insolvency agreement. A Company Voluntary Arrangement (CVA), for instance, is legally binding for all parties and enables you to carry on trading whilst repaying your creditors a pre-agreed monthly sum.

With such a broad range of support options for companies with cash flow concerns, it’s possible to quickly get back on track. Negative cash flow can create a downward spiral of debts but if you consider one or more of these solutions you can help your business reach its full potential.

Article written by Jon Munnery, an insolvency and company restructuring expert at UK Liquidators, a leading provider of company liquidation services to both solvent and insolvent limited companies.