Cash flow is king

Business Blog

Cash flow is king for 2012

Introduction

As the credit crunch continues into 2012 businesses are being forced to review their credit control and supplier management policies in order to ensure they maximise cash flow and the availability of liquid funds.

Independent research by Basware, the financial management consultants, highlights that 45 per cent of chief financial officers for UK businesses state they are more likely to lengthen the time they take to pay suppliers than they were just twelve months ago.

This is a significant change in thinking that will have a knock on effect throughout the UK as businesses struggle to find the extra finance to fund this increase in time taken to collect their outstanding debtors.

Another interesting point to emerge from Basware’s Cost of Control Report is that a surprisingly low 54 per cent of the chief financial officers who contributed to the survey confirmed that reducing the number of debtor days on their debtors ledger was a key strategy for 2012. In response to the detailed questions, 36 per cent responded that they are more likely to offer discounts to their customers to encourage early payment.

Business confidence

The research highlights substantive swings in the financial management strategies of business finance chiefs which points to an underlying lack of confidence in their organisations future liquidity and ability to generate required cash flow levels.

This is reminiscent of the early days of the credit crunch when larger companies just squeezed smaller suppliers and service providers by taking longer to pay in order to ease their own cash flow problems. The outcome of this was that many smaller firms with healthy order books just ran out of cash and went to the wall.

The other problem this gives the wider economy is the effect it can have on the many more small and medium sized business who deal with larger organisations as they try to find the additional finance required to fund the longer payment terms. This often diverts management focus from running the business and can limit funds required for growth and expansion which directly affects the UK economy as a whole.

These contracting effects on the liquidity of small and medium sized businesses become particularly acute in times like these where business finance and loans are more difficult to secure from mainstream banking sources.

Finding the finance

Asset finance in the form of invoice finance and stock finance are effective and increasingly popular forms of business funding.

Stock finance packages enable efficient procurement procedures, funded by the lender, which enables negotiated discounts on purchases in return for fast payment terms. This means suppliers are not being squeezed on their cash flow.

Invoice finance is a great way to boost cash flow by receiving up-front payment form the lender against unpaid invoices. It frees up cash immediately and eases the burden of the customers who take longer to pay. It can also fund growth in a business as the facility will increase as sales increase.

Taken together these two financial funding services are an effective way of managing the effects of liquidity confidence and cash flow crises.

The Invoice Finance Company are specialists in asset finance. To find out how invoice finance and stock finance will improve your cash flow simply call us on 0845 459 7504 and speak to one of our specialist advisors. If you found this article useful visit our website at www.invoice-finance-uk.co.uk and give us a ‘like’.