The Cash Flow Conundrum

When you’re in business, particularly when you’re one of the small or medium enterprises which make up the majority of businesses in the UK, juggling cash flow can seem like an endless task. Never does the phrase ‘work done does not equal cash in hand’ seem more real than when it’s time to pay the bills.

The challenge of balancing cash flow has been thrown into sharp relief by a survey from Tungsten which reveals that UK SMEs are owed an average of £40,857 with some half of that being overdue. This late payment culture, according to the survey, leaves a quarter of UK business facing a potential financial crisis.

It may be easy to point to services such as invoice factoring or invoice discounting as a potential solution but these come at a cost which has either to be borne by the invoicing company or generally by its customers in the form of increased prices.  Either way this means that the organisation which has decided to delay payment is effectively being subsidised by others; a very cheap form of credit for the late payers, a very costly one for everyone else.

The culprits in the late payment stakes seem to be spread across the board, from governmental organisations through large businesses and into the SME market. The problem that this causes is that for every single late payment another organisation is unable to pay its bills on time, as therefore are their suppliers, and their suppliers and so on. This means that one single large payment which is late can cause cash flow difficulties in numerous organisations across the supply chain.

One way in which businesses can try and alleviate this problem is to keep a close eye on expenditure and ensure that contracts taken on match business requirements as closely as possible. Take phone systems for example. A growing business may look to the future and sign up for a telephony system which meets their anticipated future needs. However, this may mean that for an initial period, the business could end up paying for part of a system which it does not require and is not using.

It’s perhaps understandable why a business may choose that option. Faced with an initial outlay, it may seem prudent to over-design at the outset in order to save the cost of redesign at a later stage. But this can be a false economy, particularly as there is another option which does not require initial overdesign or later re-commissioning. That option is to choose a telephony system which is able to flex and change as the business grows. For example, a small business in the initial stages of growth may require a simple answerphone and telephone redirect service. As the business grows, further services such as call forwarding and recording, multi-call queuing, conference calls or a virtual switchboard can be added as needed.

The benefits are clear.  There is no need to spend time in second-guessing the future and there is no need to pay for services now which may not be required for some time to come, if at all. And flexible telephony services are just that; flexible.  So if a one-off project requires extra phone capacity for a short time then the service can be expanded as required and then revert to business as usual once the project ends.

In an ideal world, the late payment culture would become a thing of the past; helping to smooth out the cash flows of businesses large and small. In the meantime, controlling expenditure with ‘as needed’ services can go some way towards helping businesses to solve the cash flow conundrum.

Written by Alison