Without appropriate cash flow a company will fail. If access to additional investment is limited alternative options to generate cash should be considered.
- Cash collection techniques
- Refinancing and Invoice factoring
- Releasing cash by Debt Rescheduling
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Tighten up on Cash Collection
One way a company can significantly improve its cash flow position is by improving cash collection. Simple changes such as ensuring that invoices are issued correctly and on time can significantly speed up client payments.
It is also vital to keep an eye on any invoices that are outstanding. Where this is the case these should be appropriately chased. If a bill remains outstanding the threat of further action can often be enough to ensure payment.
Where a company is struggling to collect a specific debt it could consider selling it to a specialist purchaser.
Selling specific bad debts is also an option. This can improve short term cash flow by providing VAT bad debt relief. Funds may also be preserved as the cost of collecting the debt is reduced.
Improving Cash Flow with Refinancing and Invoice Factoring
If simply improving cash collection does not sufficiently improve the company’s cash flow borrowing could be considered. However since the beginning of the credit crunch this has not been easy.
If access to credit is not available from the company’s bank alternative options for borrowing may be available.
An alternative to bank borrowing is Asset Refinancing. This allows the company to borrow against specific assets that it owns. It is particularly relevant if the company has valuable equipment, machinery or vehicles. Up to 70% of the value of these assets could be turned into cash using this method.
Where a company does not own valuable tangible assets an alternative option is Invoice Factoring. This facility helps improve cash flow by giving a company access to funds as soon as invoices are issued. The business does not have to wait until payment is received from the customer.
Restructuring Company Debt to improve Cash Flow
In addition to raising additional funds the other method of improving cash flow is to restructure company debt. If debt repayments can be reduced the company will be able to preserve cash. The money saved can then be used elsewhere.
There are various debt restructuring solutions available. One of these is a Company Voluntary Arrangement (CVA). This enables debt payments to be reduced and cash to be freed up. Debt that remains unpaid at the end of the Arrangement is written off.
For smaller companies Pre Pack Liquidation can be a good alternative restructuring option. With this solution a new company is set up which can then trade in place of the old debt free.