Magazine article Management Today

Crash Course in ... Dealing with a Cash Flow Crisis

Magazine article Management Today

Crash Course in ... Dealing with a Cash Flow Crisis

Article excerpt

An important customer has just gone bust, you didn't have your eye on the ball, you've got some major bills to pay and unfortunately there's no money in the kitty. Help!

Don't run straight to the bank. 'You should never go to the bank and say we have a problem, can we have more money,' says Clive Lewis, head of enterprise at the Institute of Chartered Accountants in England and Wales. 'It's vital to show the bank you're in control and it will ask you what other actions you have taken.'

Revise your forecast. 'Start by producing a new forecast. It may be necessary to forecast every day,' says Lewis. 'The idea is to co-ordinate incomings and outgoings as closely as possible.'

Chase what's due. 'Look at who owes you money and apply some pressure,' says Philip King, chief executive of the Institute of Credit Management 'Too many businesses don't chase cash from their customers, but a collection agency can do it for you.' Threatening to charge statutory late payment interest can help. Some customers may agree to pay early in return for a discount.

Prioritise your creditors. Many businesses would pay wages first, but you may also want to prioritise suppliers you can't do without.

Ask for some leeway. Suppliers will often give you longer to pay if they think it is a temporary problem and you are honest with them, says King. 'Not saying anything exacerbates the situation - they would far rather know if there's a problem, and lots will agree to an extended payment plan.' Target suppliers you have a strong relationship with. …

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