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Discover leading insights from our finance experts at The Finance People. Use this financial advice to enhance your strategy, to overcome common financial challenges within SMEs, or to better understand key areas of finance for business. 

3 Cash Flow Warning Signs You Shouldn’t Ignore

When it comes to cash flow, you can think you’re doing everything right – but things could be quite different. A cash flow crisis can sneak up on you. If you’ve got a forecast, you receive your payments and you can pay all your overheads and expenses (even if a bit late) then what’s the problem?

Cash flow issues are stressful, unnecessary, and put a lot of strain on your business. Here are 3 cash flow warning signs you shouldn’t ignore.

1. Your business is reliant on your larger customers paying on time

It’s a wonderful feeling having won significant business from the same customers. But if you find yourself breathing a sigh of relief when those few larger customers pay their invoices, it suggests you’re potentially too reliant on them financially.

If they’re late with payments, or worse – they suddenly cannot pay at all – would this leave you in a risky position? Would you also be unable to pay your employees and find yourself requiring a loan?

Action: If you find yourself reliant on these types of clients, make sure to check your invoicing terms and update them to protect yourself. Be clear with your client about the terms to encourage them to pay on time. Consider looking for work across more clients to spread your risk.

2. You’re considering hiring someone specifically to chase customer invoices

According to our latest report, 11% of SMEs have been forced to hire someone to chase overdue invoices. Overdue invoices are one of the most common causes of poor cash flow.

If overdue payments have become a real problem, we’d recommend again reviewing your invoicing terms, or potentially using an automated invoicing system, such as Quickbooks or Zoho Invoicing.

Action: Make sure to tread carefully – hiring is another expense you will need to maintain, and without a healthy cash flow, you could find yourself in more trouble. Again, be clear about your invoicing terms and try to stay on top of this as much as possible.

3. You think it’s okay to dip into your cash reserves

Every single business should have different cash flow reserves for emergencies where your cash flow is struggling.

But if you have the mindset where you don’t mind dipping into your cash flow reserve every single month, then it’s likely you’ll look past the issues surrounding late payments, too many overheads or overspending.

This could quickly go wrong if you end up eating up more of your reserve than you wanted to – and could suggest to your clients that you’re happy to accept late payments.

Action: Build up a reserve and try to keep it for emergencies only – don’t become too complacent. If you find yourself dipping into your reserve regularly, something needs to change.

Think you’ve got a cash flow crisis on it’s way?

At The Finance People UK, our experts have years of cash flow management under their belts. We offer SMEs and start-ups the opportunity to outsource cash flow management, to ensure they are on the right path for a promising and healthy cash flow for years to come.

From providing snapshots of cash inflows and outflows, to longer-term planning to support your future, our experts will do everything in their power to ensure your business is in a good place.

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