Avoid insolvency

Improve cashflow

Keeping cash flowing into the business is a challenge for many small companies.

There are several ways to improve your cashflow situation:

• Bill promptly - invoicing promptly and regularly should help ensure a steadier flow of cash into the business. Negotiate for regular payments across the life of any long-term contracts you may have.
• Avoid overtrading - don't continue to accept orders and try to fulfil them if you don't have enough cash or resources to do so. See our guide on how to avoid the problems of overtrading.
• Recover debts - chase up any debts owed to you. See our guide on recovering late payments and use our interactive tool to find out how you can recover unpaid debts.
• Trim your inventory - your inventory ties up your cash. It's a good idea to take the time to plan any stock reduction programmes. See our guide on stock control and inventory.
• Renegotiate your credit limits - adjust payment dates and credit limits with your main suppliers.
• Approach your bank - discuss with your bank whether they could extend more finance. But be careful not to worry the bank unduly, as they could call in any overdraft you have and make matters worse. See our guide on cashflow management: the basics.
• Factoring - sell outstanding invoices to a third party, known as a factor. Factors pay some of the debt off in advance of collection. See our guide on debt factoring and invoice discounting: the basics.
• Sell assets - raise cash by selling under-utilised assets and then leasing them back. However, you must sell the assets at their true price and check whether the sale will result in a profit or a loss.

Download guidance on cashflow from the Chartered Institute of Management Accountants (CIMA) website (PDF) - Opens in a new window.

You may want to talk to your accountant who can offer practical advice tailored to your business needs.

Subjects covered in this guide

• Introduction
• Improve cashflow
• Negotiate with creditors
• Reduce overheads
• Importance of advice when avoiding insolvency
• Possible outcomes for limited companies
• Insolvency outcomes for partnerships and sole traders

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