When faced with problems involving cashflow, it makes sense for a business to review banking and finance arrangements to see where any improvements can be made.
At present, with increasing rates of interest, your business may be facing paying more interest on working capital facilities, putting further pressure on cashflow. By undertaking a review of your working capital facilities and requirements, you may be able to alleviate these pressures through either new facilities or variations of existing ones.
Working capital facilities can include overdrafts, asset based lending, invoice finance, stock finance, trade finance, business loans and merchant cash advance facilities. These are usually short-term, with a contract period of up to 12 months.
Longer-term facilities such as business loans and mortgages can also be reviewed to see if there is the possibility of saving money on monthly repayments.
It is good practice for businesses to regularly review banking and finance arrangements to ensure that they are appropriate and competitive in the current market.
This involves analysing the cashflow requirements of your business in the short and medium term, and ensuring the current level of borrowing is sufficient to meet these needs. It is sensible for businesses to sensitise forecasts to allow for some levels of contingency within the numbers to allow for unforeseen circumstances such as a customer not paying on time, bad debts or an unexpected rise in costs.
Once the cashflow analysis has been completed, you can begin to approach your existing provider or alternatives, to ensure you have the most cost-effective and efficient method of funding available to your business.
Businesses should regularly test the market on all types of borrowing to get the best deal available. Over time lenders’ appetites and pricing changes can present opportunities for businesses to save money on finance arrangements. It is best practice for businesses to treat lenders in line with other suppliers and review these relationships on a regular basis.
Should the cashflow analysis identify that your business will require additional borrowing facilities, it is best to start this process as early as possible. The earlier lenders are approached with a request for borrowing, the more options the business is likely to have.
During periods of cashflow pressure, businesses should ensure any new debt taken is sufficient and appropriate to support the business and is not going to damage it in the medium to long term. Short-term fixes can often lead to longer-term problems, as the initial lump of cash is spent and the business is left with increased monthly repayments.