UK businesses have entered a period of constant cash flow issues. The economy is the direct cause of this. The economy has created a situation where there are a lot of job losses. Add in the increased prices of petrol and there are more problems being created. Since customers have trouble coming up with money to pay an invoice it means companies are being squeezed for cash to pay their own debts. As a cycle it is difficult to break without the influx of cash. It can be such a vicious cycle that one has to close their doors.
In a business where one does not have enough cash it can stop more than regular business processes. A company cannot grow or thrive if they do not have cash. This will in turn create job loss from that company. It will also stop the company from hiring new employees due to lack of funds. The cash flow issue is not just a problem for that one business. It becomes a problem for many others especially if there are loans, unpaid invoices, and other unpaid expenses.
NatWest has recently completed a study of numbers in order to examine the current statistics. They found that one out of five companies is owed between 50,000 and 100,000 pounds in payments. These payments are late each month. A manufacturing business is susceptible to more debts than the average company. A huge debt such as that mentioned can certainly be a problem for any business.
Government agencies and councils are also part of the problem. They have a big habit of being late with payments. With the government and local councils creating part of the cash flow problem it makes it difficult to have faith in the economy or recovery from a recession. Businesses need to trust that they will receive the correct payments. The fact that government agencies are even responsible for being late is definitely something near to irony.
Businesses that want to get out of their cash flow cycle where problems continue to mount each and every month have two options: factoring or discounting. Invoice discounting is a non bank loan where one receives a partial amount of up to 80 per cent of the amount owed. The invoice and ledgers stay with the business rather than invoice factoring methods.
In invoice factoring the invoices are sold to a third party for a percentage payment in order to have cash. The invoice is no longer the original company’s responsibility, but the third party. The third party needs to get payment in full from the customer. There is a small problem with these two options. They can have fees that are a bit high, which cuts into your profit. The best benefit is that you have the cash to survive and hopefully you can continue to get payments on time or deal with late payments without fear of bankruptcy. The option that works best for a company is the one you should choose.