Why Cash Flow is critical for your business

Irrespective of your business model it is critical that you understand the Cash Flow cycle. If your sales are cash on demand or cash over the counter your challenges are a lot different from a company which sells their products or services on credit, getting paid within 30 days of date of invoice.

The typical business scenario or ‘Cash flow cycle’ is:

• Cash is used to buy raw materials (Usually bought on Credit)
• Raw materials are converted to finished goods
• Goods are sold and invoices (Accounts Receivable) are generated
• Accounts receivable are collected and converted back to cash again and the cycle continues

The problem arises when the normal Cash Flow cycle is stretched or broken – let’s say your customers do not pay you within the agreed payment terms so rather than pay within 30 days they are taking 90 or even 120 days. This has a knock-on effect: you are now under pressure to pay your supplier for the raw materials who in turn threaten to withhold deliveries. If your supplier of raw materials withholds deliveries resulting in no new products being manufactured, you are now unable to deliver new orders. If this situation continues sooner or later you will run out of cash especially when you factor in your rent, rates, salaries, light, heat and all the other costs associated with a business. Sadly you will be just another business casualty which need not have happened with the right processes in place and advice being sought.

For a business to survive it needs adequate Working Capital to get through the time it takes between making a sale, manufacture the goods or delivering the services and getting paid by customers. Provisions in terms of credit facilities, bank loans and overdraft facilities are usually called upon to fund the Working Capital.

There is an alternative to bank facilities called Invoice Discounting, it is a facility which releases the cash from an unpaid invoice almost immediately without having to wait for the customer to pay the invoice within the agreed Terms of Payment time. It is a lot easier to put in place and less time consuming.

When setting up your business it is important to get advice from your accountant on the various systems and processes you will need to manage and oversee the Finance role. A good option is to outsource the finance responsibility while you focus on establishing the business and getting into a profitable position before you consider employing a financial person to manage the processes internally for you.

If you are having problems with your Cash Flow and want to look at alternatives to the traditional bank facilities why not consider Invoice Discounting.

At Oxmantown Commercial we specialise in working with SME business owners and start-ups providing Cash Flow solutions particularly to fund Working Capital – why not give us a call to discuss your situation, we can very quickly tell you if Invoice Discounting is right for your business.

Call us on +353 1 230 0866 or e mail info@oxmantowncommercial.ie