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31 Oct 2023 / Guides

Cash flow management: The complete guide

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Cash flow management can mean the difference between success and failure for a business. But for thousands of SMEs across the UK, late payments from customers are causing serious damage to their financial health and impacting their ability to pay suppliers, HMRC, and employees on time. In some extreme cases, it can even cause viable businesses to go under.

In this guide, we’ll cover everything you need to know about cash flow management, including

  • What cash flow management is
  • Common cash flow problems that businesses face
  • The importance of positive cash flow for SMEs
  • How businesses can improve their cash flow management
  • How Time Finance can help to alleviate your cash flow issues

If your business is struggling with cash flow management because of late payments, Time Finance can help.

Our finance solutions help to alleviate some of the issues that arise from poor cash flow by injecting working capital back into your business with Invoice Finance solutions and helping you access the assets you need with Asset Finance solutions.

To find out more about our range of flexible finance options and how they could benefit your business, get in touch with our dedicated team today.

What is cash flow management?

Cash flow management involves keeping track of the money coming into your business (cash inflow) and monitoring it against outgoings such as bills, salaries, and maintenance costs (cash outflow).

For business owners, the importance of good cash flow management cannot be overstated. It gives you a complete picture of cost versus revenue and ensures you have enough funds to make all of your essential payments whilst still turning a profit.

Most business owners are aware of how important effective cash flow management is to the success of their business. However, SMEs are often disproportionately affected by negative cash flow, with around 22,000 viable businesses being forced to close last year alone.

But why does negative cash flow affect SMEs so disproportionately? This is the result of something known as the late payments cycle, which is the leading cause of poor cash flow for B2B businesses.

The late payments cycle & the importance of cash flow management for businesses

Effective cash flow management is important for businesses because negative cash flow can cause the business to go under.

The longer a business goes without positive cash flow, the harder it is to stay in business for an extended period of time. Big businesses are far less likely to struggle with cash flow challenges than small businesses because they generally have better access to financial resources.

One of the biggest causes of cash flow management issues for B2B businesses is the late payments cycle, which businesses often find themselves trapped in as a result of unpaid invoices.

The vicious cycle of invoicing customers for products or services and receiving the payment late has a domino effect that prevents small businesses from paying their bills, suppliers, and in worst-case scenarios, their own employees.

In a recent review conducted by Time Finance, we discovered that an overwhelming 75% of UK businesses worry about cash flow as a direct result of overdue invoices from their customers.

And with SMEs owed an average of £250,000 in unpaid invoices, it's no wonder so many are struggling with poor cash flow management.

So, how can businesses break free from the late payments cycle and improve their cash flow? This is where reliable finance solutions such as Invoice Financing can help.

How can businesses improve cash flow management?

For struggling businesses, Invoice Finance can help to bridge cash flow gaps caused by late payments.

Asset Finance, on the other hand, can be an effective way to maintain control of financial outgoings, whilst supporting budgeting for future investments.

Each of these finance solutions can assist your business in different ways, so it's important to understand the difference between the two:

Invoice Finance

Invoice Finance is a simple yet effective solution to get cash running into your business and means you can get paid faster for finished work without being held back by late customer payments.

Instead of waiting 30, 60, or even 90 days for customers to pay their invoices, Invoice Finance bridges the gap by allowing businesses to access the value of their outstanding invoices within 24 hours of the invoice being raised.

There are two main types of Invoice Financing:

  • Invoice Factoring: This involves outsourcing your unpaid invoices to the company you're borrowing from. They take over the burden you have as a business owner to chase payments, managing this professionally and seamlessly on your behalf.
  • Invoice Discounting: Your business will still get the benefit of receiving a quick cash injection, but your customers won't be informed that an Invoice Finance facility is involved. All communications and financial procedures will be dealt with by you.

Of the two types, Invoice Factoring is generally considered to be the best option for SMEs because it removes the often costly necessity of employing your own credit control department. However, if your business would benefit from keeping the fact that you use Invoice Finance confidential, or you already have internal credit controllers, then Invoice Discounting might be a better option.

At Time Finance, your business will receive a dedicated and experienced credit controller who will make regular contact with your customers on your behalf when you choose Invoice Factoring. This gives you some much-needed freedom and flexibility without impacting client retention and loyalty.

Asset Finance

Asset Finance allows businesses to get faster access to essential assets such as equipment, furniture, technology, and software without putting strain on cash flow.

With reliable Asset Finance solutions, business owners have the flexibility to spread the cost of investing into manageable monthly payments, improving cash flow management and giving the business the freedom to grow at its own pace.

Depending on which type of Asset Finance is chosen, the business has the option to gain full ownership of the asset, return it to the lender, or upgrade it for a newer model at the end of the agreement.

There are two main types of Asset Finance:

  • Finance Lease: Instead of paying for an asset upfront, the business agrees to rent the asset for a fixed or minimum term and make regular payments over an agreed period of time. At the end of the lease period, the business must return the asset to the lender or take out a new lease.
  • Hire Purchase: Similarly to Finance Leasing, the business pays for an asset in instalments. However, at the end of the contract, the business will then own the asset rather than having to return it to the lender.

For advice on which type of Asset Finance might be most suitable for your business, get in touch with your finance broker today.

Improve your cash flow with finance solutions from Time Finance

The Time Finance team have years of shared experience working with businesses of all sizes and from a wide range of industries to provide reliable and effective business finance solutions that prioritise their cash flow management needs.

We pride ourselves on our relationship-driven approach, taking the time to get to know each of our clients on a deeper level to ensure we're delivering the best solutions for them.

To find out more about how Time Finance can support you and your business with flexible Invoice Finance and Asset Finance solutions, get in touch today.

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