Dealing with cash flow problems

Below are some suggestions for unlocking funds without affecting your operational capacity.  Keep in mind that you should always seek professional guidance before making changes to your business if you are unsure of the repercussions.

Hidden sources of finance

Most business owners immediately think of bank loans when they’re short of money.  But there are many more resources you can tap into before you ask for an overdraft or an overdraft extension.  You can often free up funds from within your business by re-examining your business systems, and these funds might in themselves be sufficient for your immediate needs.

To free up funds from within your business, you could look closely at the following.


Your assets include debtors, stock, pre-paid expenses, vehicles, plant and equipment, fittings and property.  Each of these is a possible source of funds.


Are you letting some customers have credit because you are too busy to chase payment?  This is a common occurrence in small businesses where the owner is so busy running the business, getting products out the door or services completed they don’t pay enough attention to their debtors.  Many customers will take advantage of this situation – don’t let it happen to you.

Here’s how you fix the problem

  • Get invoices out promptly – after all, this is your future cash flow.
  • Send invoices out with goods and date them from the day the service was completed rather than following the standard ‘end of month’ date. The earlier the invoice date, the earlier your chances are of getting paid.
  • Consider reducing payment terms from 14 days to 7 days from the invoice date.
  • Follow up promptly when invoices aren’t paid by the due date.  Be polite but firm.  If you haven’t the time to do this yourself, then appoint someone to do it for you.
  • Establish the average age of your accounts receivable and set yourself the goal of reducing this age by a set target every month.
  • Consider offering a discount for prompt payment. Discounts can be a good option but you need to work out whether the use of money paid earlier is worth it.


Do you have excessive capital tied up in stock?  This can occur in two ways:

  1. Carrying high levels of items that you could obtain from suppliers at short notice.
  1. Having too many slow moving items and too few fast moving items.

You need to regularly review your stock levels, your stock turnover rates and your purchasing policies.  Can you free up money by reducing stock?  Consider having a quick sale to get rid of of slow moving stock.  You may need to heavily reduce some items to achieve this.

Can you approach suppliers to take back some excessive stock you may have ordered?  They might help you out of a temporary tight corner as a goodwill gesture if you explain you have a temporary cash flow problem but that you do wish to build a long term relationship with them.

Pre-paid expenses

Review your pre-paid expenses and consider paying monthly instalments rather than an annual payment.  There might be an additional cost for doing this, but you must weigh the extra cost against the advantages of 12 small payments that your cash flow can comfortably handle versus one large annual payment.

Fixed assets

These can often be the source of a significant amount of cash.  You might be able to sell off little used assets and hire suitable replacements when you require them – for example, you might be able to sell vehicles and lease others instead.


Finally, consider your suppliers as a possible source of funds.  Ask for extended payment terms to give you the opportunity to sell the goods first before you have to pay.  If the supplier won’t budge, try splitting the order in two and offer to pay normal credit terms (30 days) on one half of the order and 90 days on the other half.  Your suppliers will be more likely to agree to this kind of arrangement if you’ve paid them promptly in the past.

Next steps

  • Identify exactly how much additional cash you’ll need – this is especially important if you decide you need additional finance from a lender.
  • Seek professional help from an accountant, business mentor or your bank manager.
  • Reduce your expenses and tighten your credit policies based on the steps outlined above.
  • Research additional options for increasing your cash position.