Small business lose an average of £26,000 due to poor cash flow

01/04/2019

If you run a small business or are self-employed, you’re undoubtedly aware of the risks of poor cash flow management. With new statistics suggesting 71% of small business owners are worried about cash flow, it could be time to consider a new approach to your finances.

Startling new figures indicate that 57% of businesses have experienced problems with cash flow, creating a number of headaches.

Chief among those is that many businesses are having to turn down work as a result, costing them an average of £26,000.

Almost one in seven business owners have also found themselves unable to pay staff due to cash flow issues, leaving around 2.2 million people in the UK without pay when it is due.

On top of this, 38% of businesses that have experienced problems with cash flow have not been able to pay their debts, with the average small business owed £31,055 in overdue invoices.

The statistics also show that self-employed workers are a further 2.5 times more likely to have cash flow issues than businesses with up to 49 employees and are three times more likely to apply for a loan than any other group.

What’s the cause?

There are many things that can cause problems with cash flow. As well as your clients and customers paying late or missing payments, other causes can include low profits or losses, over-investment in development or stock, overtrading, or sudden unexpected changes in the market.

However, the effects of most of these causes can be mitigated and controlled by good cash flow management, and this is an area many small businesses still struggle with.

Over 54% of small UK businesses still run manual calculations in spreadsheet programs such as Excel to track business bill payments. This can leave them at risk of losing important information, and makes it more difficult to identify when any cash flow shortfalls may be around the corner and to remind clients about their payments.

Are digital solutions a simple fix?

For many companies, employing a digital solution can make a fast and significant change. Although it may seem like an unnecessary expenditure, especially if you’re already struggling with your cash flow, the long term benefits could mean the difference between a healthy business or a downward slope in the future.

Many digital back-end solutions include features like automatically reminding clients to pay invoices, alerting you when invoices are about to go overdue, producing VAT returns and management reports and reducing the chance of errors.

Software like this can also save a large amount of time spent on administrative tasks, freeing up time to chase overdue invoices or employing strategies to encourage your clients to pay on time.

There are many different solutions available for companies of different sizes, and with a little research you should be able to find software that matches your industry, size and budget.

Better cash flow

Using modern technology, you can not only manage your finances more efficiently, but you may also find that it is easier to encourage clients to pay on time when you are using the latest solutions.

Analysis has shown that raising an invoice on mobile, for instance, results in payment after an average of 8 days as opposed to 28. This could be because it makes it easier for customers to pay even if they are away from their desks.

What changes have you made that have helped you get in control of you cash flow? Are there any patterns you’ve noticed amongst your customers?