Protecting the Cashflow King Amid Market Uncertainty

Steve Everett, Head of Product and Propositions, Global Transaction Banking at Lloyds Banking Group

Steve Everett

According to the latest Purchase Managers Index (PMI) data, the political and economic uncertainty that had marked the first half of the year has been replaced by economic contraction, at least in the short term.

While it is unknown as to how long this may last, the need to keep a tight management on working capital is of upmost importance; after all, cashflow is king.

Businesses need to have the cashflow to bridge the gap between receiving payments from customers and paying their suppliers, staff and other stakeholders.

While a focus on sales and profits is important,if a business is unable to meet payments due to poor cashflow, then they could quickly find themselves facing loss of staff, preferred suppliers, or customers and, in the worst case, can even result in the collapse of the business itself.

But for many, this need not be the case. Proper management of a company’s working capital can not only ensure it has access to the funds it needs to meet all its necessary day-to-day payments, but can also highlight the pressure points within cash cycles to ensure the business runs smoothly, even in tougher times.

Doing so can also boost efficiency and save costs – something else that can be vital in challenging times.

With this in mind, now is a sensible time for firms to take a laser-like focus to reducing the amount of cash tied up in inventory and receivables, offering a cashflow boost to help ride out any stormy waters that may be ahead.

Streamline the invoicing process

Market uncertainty can often lead to the paradox of firms wanting to be paid quicker but wanting to keep hold of cash longer.

If all firms look to streamline their invoicing process, it can help the working capital of all stakeholders throughout the supply chain.

This may include paying invoices in more frequent batches, or even as they come in rather than paying them weekly or bi-weekly.

Invoicing errors are also a frequent contributor to long payment cycles so it is essential that there is effective communication between marketing, sales and finance departments to prevent these incidents.

Consider the finance options available

Streamlining the invoicing process is often easier said than done. As such, invoice financing is an important funding option for firms to consider, especially when firms are more likely to face late payments and need a cash flow boost.

Essentially, invoice financing allows for late payments to be cashed in via an intermediary buying your unpaid client bills for a fee. This allows for dormant cash on your balance sheet to be unlocked.

More and more firms are using invoice financing to help manage their working capital. According to recent data from the Asset Based Finance Association, £711million in invoice finance was lent to small UK businesses between January and March this year, a 60 per cent increase on the £485million raised in the first quarter of 2015.

Similarly, asset based lending allows businesses to release capital tied up in stock, plant or property. For seasonal firms for example, asset based lending can help the firm move through quiet periods – but only if a business has taken that first step of identifying the delays in its payments cycles and sought advice on how to address them.

Speak to a trusted adviser

It is still too early to know what lies ahead for the UK economy, and it is important that a certain level of prudence doesn’t escalate and become a self-fulfilling prophecy as the economy talks itself into a recession.

However, whether facing challenges or not, improving your business’s operational efficiency can rarely be a bad thing, and may prove to be a well-timed intervention for many.

Whatever happens next, deciding to face the future alongside a trusted adviser – one who can take a holistic view of the challenges ahead and understands the tools and finance available – can be invaluable.

Steve Everett, Head of Product and Propositions, Global Transaction Banking at Lloyds Banking Group

Steve Everett

According to the latest Purchase Managers Index (PMI) data, the political and economic uncertainty that had marked the first half of the year has been replaced by economic contraction, at least in the short term.

While it is unknown as to how long this may last, the need to keep a tight management on working capital is of upmost importance; after all, cashflow is king.

Businesses need to have the cashflow to bridge the gap between receiving payments from customers and paying their suppliers, staff and other stakeholders.

While a focus on sales and profits is important,if a business is unable to meet payments due to poor cashflow, then they could quickly find themselves facing loss of staff, preferred suppliers, or customers and, in the worst case, can even result in the collapse of the business itself.

But for many, this need not be the case. Proper management of a company’s working capital can not only ensure it has access to the funds it needs to meet all its necessary day-to-day payments, but can also highlight the pressure points within cash cycles to ensure the business runs smoothly, even in tougher times.

Doing so can also boost efficiency and save costs – something else that can be vital in challenging times.

With this in mind, now is a sensible time for firms to take a laser-like focus to reducing the amount of cash tied up in inventory and receivables, offering a cashflow boost to help ride out any stormy waters that may be ahead.

Streamline the invoicing process

Market uncertainty can often lead to the paradox of firms wanting to be paid quicker but wanting to keep hold of cash longer.

If all firms look to streamline their invoicing process, it can help the working capital of all stakeholders throughout the supply chain.

This may include paying invoices in more frequent batches, or even as they come in rather than paying them weekly or bi-weekly.

Invoicing errors are also a frequent contributor to long payment cycles so it is essential that there is effective communication between marketing, sales and finance departments to prevent these incidents.

Consider the finance options available

Streamlining the invoicing process is often easier said than done. As such, invoice financing is an important funding option for firms to consider, especially when firms are more likely to face late payments and need a cash flow boost.

Essentially, invoice financing allows for late payments to be cashed in via an intermediary buying your unpaid client bills for a fee. This allows for dormant cash on your balance sheet to be unlocked.

More and more firms are using invoice financing to help manage their working capital. According to recent data from the Asset Based Finance Association, £711million in invoice finance was lent to small UK businesses between January and March this year, a 60 per cent increase on the £485million raised in the first quarter of 2015.

Similarly, asset based lending allows businesses to release capital tied up in stock, plant or property. For seasonal firms for example, asset based lending can help the firm move through quiet periods – but only if a business has taken that first step of identifying the delays in its payments cycles and sought advice on how to address them.

Speak to a trusted adviser

It is still too early to know what lies ahead for the UK economy, and it is important that a certain level of prudence doesn’t escalate and become a self-fulfilling prophecy as the economy talks itself into a recession.

However, whether facing challenges or not, improving your business’s operational efficiency can rarely be a bad thing, and may prove to be a well-timed intervention for many.

Whatever happens next, deciding to face the future alongside a trusted adviser – one who can take a holistic view of the challenges ahead and understands the tools and finance available – can be invaluable.