Cash flow problems are one of the most common reasons businesses start to struggle. And right now, it’s particularly challenging thanks to the stop-start nature of sectors affected by lockdowns - especially hospitality and high street retail. They're experiencing a prolonged decline in revenue, while sectors like e-commerce and logistics have benefited from a surge in demand, leading to increased supply chain and stock costs.
The biggest causes of impaired cash flow include late payments, physical cash payments slowing down business, and legacy accounting software not generating accurate real-time cash positions.
But businesses don’t need to struggle on their own. Accountants can use their expertise to help clients overcome cash flow problems by using their financial management skills to improve their processes, collect cash faster and enable them to diversify their revenue streams.
We’ve jotted down five of the main reasons small businesses get into cash flow trouble, and how their accountants can get them back on track.
1. Clients and customers keep paying their invoices late
Unfortunately, it’s all too common for invoices to be paid late. On average, in the UK, invoices are around seven days late. It’s frustrating for business owners because their cash flow forecasts are likely to be based on invoices being paid on time - not to mention that chasing late payments is time-consuming and can damage customer relationships.
To help their clients better prepare for invoices being paid, accountants can offer advice on payment terms. For example, customers who keep paying 30-day invoices late can have their terms reduced to 15 days or be forced to pay upfront.
Accountants should also recommend incorporating invoicing software that chases clients. There’s lots of different options: Chaser is a standalone product, but there are also tools that facilitate access to finance, like Satago.
2. There’s been an unexpected decline in sales
Lots of businesses’ sales suffered during the pandemic - either due to their doors being closed, or because they needed time to to turn on their heel and diversify their services.
Outside of the pandemic, a drop in sales can happen if supply chains are disrupted - stopping goods from being manufactured - or if a new competitor enters the market.
Whatever the reason, accountants can free up clients' time by automating payments to their customers. Technology such as Modulr’s Payments Dashboard makes payments seamless - clients only have to click the final approval button, and their accountants can handle the rest from a single online portal.
With so much time saved, clients are free to focus on increasing their resilience to drops in sales by expanding revenue streams, entering new international markets or re-engineering their supply chains. And into the future, having resilience baked in to small businesses will be healthy to steel against the uncertain economic times ahead of us.
3. The business lacks cash management skills
Without a robust cash management strategy, businesses will find it hard to make sure they’ve got the right funds to pay suppliers once purchase invoices come in.
And business owners are unlikely to have cash management skills - they just don’t have the expertise or resources to devote to these tasks. Also, their time is far better spent on carving out their company’s unique proposition and making sure they stand out in the market.
Accountants can plug their clients’ skills gap with their own expertise, but they can also buy the business some time by renegotiating extended credit terms from key suppliers.
Even more importantly, accountants should consider switching to using Faster Payments for supplier invoices - and Modulr is one of the few non-banks directly connected to the network. Transactions clear accounts in just 90 seconds, so companies don’t have to ensure there’s a cash buffer to accommodate delays - they can pay invoices on the same day they come in.
4. Lots of companies still use legacy software (yes, really)
Legacy accounting software still dominates in a good proportion of businesses. It slows down the visibility of actual finances, and increases the risk of cash balances being recorded inaccurately.
If accountants can persuade their clients to switch to providers such as Xero, Quickbooks, or Sage 50cloud, they’ll be able to collaborate with them directly, generate close to real-time data, and also benefit from automation features by connecting the software to providers such as Modulr.
As a result, accountants will be able to save their clients time by streamlining processes and providing them with up-to-date cash balances.
5. Cash is still a primary payment type
Lots of high street stores still accept cash, and it can result in cash flow difficulties simply because weekly bank branch visits to bank takings are time-consuming, and cause delays.
Accountants can ease these delays by recommending their clients incorporate an EPOS system, such as Square or Zettle, which take instant payments electronically from customers. There’s a small cost involved in taking payments in this way, but the benefits outweigh the consequences: businesses will reap efficiency gains from not having to physically record and bank cash.