High street horrors

My main clients are high-street retailers, and my sales have taken a real pounding recently, with some of my customers going under. What’s more, my costs are rising, so I am being hit on both sides. I am worried I might run out of cash. How can I ensure this doesn’t happen?

A. Mike Harding writes:

Make sure you have a current cashflow forecast in place, and keep it up to date, which means looking at it at least monthly. It might be good to have two or three versions: the best, realistic and worst-case scenarios. Remember that your worst-case might not be caused by falling sales, as this might actually reduce your working capital needs. It could be because your customers are taking longer to pay you.

Based on what this reveals, you can arrange extra finance upfront if it’s needed. The banks may be better placed to offer funding with the Enterprise Finance Guarantee scheme now in place, which can help if you don’t have additional security to offer.

Another option you should at least explore is using a factoring or invoice discounting service. This will release money against your invoices, so more working capital is available as your business grows. Some factoring services also offer debtor book administration and bad debt insurance as part of their packages, which could be very useful at the moment.

Now is also a good time to thoroughly overhaul all your credit control routines. Ensure that you issue and chase invoices promptly and regularly review the creditworthiness of your customers by doing credit checks and taking fresh references. Also, consider insuring some or all of your debtor book against bad debts. Finally, make sure you have robust processes in place that mean you avoid supplying more to a customer if they don’t pay on time.

Next on your ‘to do’ list should be a complete review of your costs. Some are essential to keeping your business strong, such as paying your best people or financing your most effective marketing mechanisms. To make cuts on areas such as these, even in bad times, would hurt your business. However, other costs, such as travel, could potentially be reduced without damaging your business. Perhaps you could hold a teleconference rather than travelling to a meeting, saving time and money. Scrutinise every cost and reduce those you can.