Managing Working Capital in Turbulent Times

Over the last couple of years, businesses have had to deal with a pandemic, war on mainland Europe, supply chain issues, labour shortages, rising inflation and increases in interest rates. Many businesses are having cash flow issues as a result. Obtaining working capital loans from your bank can be a difficult and time-consuming process. Early identification of cash flow issues and engagement with your bank is therefore key to ensuring facilities are in place when you need them.

Managing working capital effectively is key to navigating a business through difficult times. Here are some top tips to help manage working capital

Revenue

• Invoice in a timely manner and operate strict payment terms
• Send weekly reminders to debtors that are operating outside of their credit terms
• Offer one off discounts to clear down aged debt
• Engage with customers consistently operating outside of their credit terms. They may be suffering difficulties of their own and you may be able to assist in some way. One way of assisting may be by offering a payment plan – this will give you certainty around your own cashflow

Expenditure

• Cut down on non-essential or discretionary spend immediately
• Try and agree extended payment terms with your suppliers
• Manage stock carefully. Operate a just in time stock process if possible
• Engage with creditors. Communication is key! Your business is key to the success of your suppliers and they will likely welcome engagement
• If viable, utilise working capital finance facilities such as invoice discounting
• Reduce staff costs if problems persist

Management

• Prepare weekly cashflow statements (best case and worst-case scenarios)
• Review the results to budget and ensure that all spend is closely monitored
• It is worth saying again - Communication is key! Do not put your head in the sand as this approach will make things worse. Engage early with customers, suppliers, financial institutions and other stakeholders to ensure that your business remains on a sound footing