I am running out of cash, what can I do?

If you find yourself running out of cash, don’t panic. There are small steps you can take to improve your situation.

The first thing to do is a cash flow forecast. This will help you understand whether you have a temporary or longer term cash shortfall. And it will help you choose a strategy to deal with it.

Work out where you are

• A cash flow forecast template will help you start off.
• List all the payments you are going to make over the next week, month and year. Don’t leave any out, even if they are small. Your list should include the following main areas: equipment; stock; wages and staff expenses; rent; fuel; VAT; marketing; and professional fees.
• Do the same for what you have coming in. If you sell to other businesses, use your invoices to calculate how much you are already definitely owed and how much you can expect to be paid if future contracts come your way. There are tools around that can help manage and monitor your invoices quickly and easily– like Barclays Business Manager or Business Essentials Plus.
• Be realistic about when money will actually get to your bank account. Look back to see how promptly you were paid by customers the last time you worked for them.
• If your work is less regular, or if you sell direct to the public, look at what cash came in over previous weeks and months and make informed estimates. It can help to make best, mid and worst-case projections for what you expect to receive.
• The final step in cash management is to simply subtract your outgoings from the money coming in.

You'll now have a weekly, monthly and annual view of your cash flow. If you have less coming in over the year than is going out then you need to take the most radical action.

However deep your cash flow challenge, there are positive steps you can take. The important thing is to get on the case quickly as monthly or even weekly cash shortfalls can harm businesses. Likewise improvements put in place fast can make a big difference to your future trading.

An accountant will be able to talk you through your options. If you're a Barclays Business Customer, you can arrange a free consultation with an Accountant in your area. Speak to your Local Business Manager to set this up.

Here are areas to look at to start your action planning right away.

Work through your cash management options

1. Look for areas to cut costs.

This doesn't necessarily mean cutting back harshly on your standards, product or service quality or even staff. There are lots of useful tips in our 'How can I cut my costs' section.

2. Selling to the public

There's no better way to improve cash flow than by encouraging your customers to pay by cash. If customers can pay you in cash or by a debit or credit card, then you avoid waiting for payment or for a cheque to clear. Barclays can help you consider your options here

3. Turn invoices into cash

Always invoice your customers promptly and chase their payment as early as you can. Send a reminder ahead of the payment due date – it could reduce the risk of it being paid late.

Encourage them to pay by cash, debit or credit card too. You could try incentivising cash upfront or early payment by offering discounts or other benefits.

Contact all your customers who are overdue on paying. Find out when they will be paying you. If payment is still not received then keep the conversation going, be calm, firm and clear about what you expect them to do and the next steps you will take if your payment is not received. On some occasions you may decide you need to send out final demands and legal warnings. A solicitor can help with this, or CREDITFOCUS from Barclays can issue a solicitors letter for you, as well as credit check and monitor the credit rating of your business customers, alerting you if that rating changes.

Alternatively, if the majority of your business is settled by invoices to other businesses, you should consider invoice finance. This is designed for businesses selling goods or services on normal credit terms, with a spread of debtors. Using an invoice finance solution means that within 24hours** of you issuing an approved invoice, you could be receiving up to 85% of its face value into your account. You then receive the remainder of the invoice value (after deduction of the charges for the invoice financing service) when the invoice is paid by your customer.

As a last resort you may need to take them to court and you will need a solicitor to help with this. If you’re a Barclays Business Customer we can arrange a free session with a local solicitor for you, simply talk to your Local Business Manager.

4. Restructure your repayments

Talk to your bank or any other lenders you have about changing the way you repay your loans. For example you may want to consider moving money borrowed on overdraft or credit card to a loan. This can often be cheaper and your monthly repayment costs would be more predictable. It might be sensible to extend the term of any loans, as this often lowers monthly repayments, albeit you may pay more in total over the longer term. The short term benefit on your cash levels could be crucial. If you would like to speak to Barclays about changes to your borrowing or access to new borrowing please contact a Barclays Local Business Manager by calling the number above.

Talk to your suppliers about varying the terms of your payments. Try to suggest changes that could be beneficial to them as well as you – like placing a longer term order with a new payment structure if its better suited to the shape of your receipts. Find out more in the section 'How can I cut my costs'

5. Consider your pricing

Look closely at what your competitors are selling. Using knowledge of your own business, estimate the cost that goes into their products or services. Using your own prices, can you estimate the level of profit in their sales? Is it more or less than yours? Is there room for you to increase your prices – and therefore your profits and still remain competitive in your market?

The Barclays Business Manager and Barclays Business Essentials Plus packages can help you to understand which parts of your business make the most profit and how to keep ahead of your competitors (Barclays Business Manager or Business Essentials Plus)

6. Be prepared to buy on credit…

...in the short term at least. If your cash flow is temporarily slowed by a problem that you’re confident will be resolved soon it may be worth buying goods on credit as interest charges may be small in contrast to the profit generated through having the goods available.

A charge card can be a good solution for paying for supplies across a month, particularly if you invoice for your services monthly and don’t have a constant flow of money coming in throughout the month. It works in a similar way to a credit card, but you pay off the full amount on the card at the end of each month – typically you are given 56 days interest free credit. These cards are subject to status and application.

7. Talk to the Taxman

To ease cash flow during the recession, HMRC is allowing businesses to defer their VAT payments. This can be done very quickly, by calling 0845 302 1435. There’s no minimum or maximum amount but you do need to act fast, that is before you fall behind with payments. You will still have to pay the amount eventually, but it could make a major difference to your immediate cash position.

8. Stay on top

Having worked to improve your cash flow - keep it going. Continue to forecast and regularly check your forecasts against what is actually happening to your cash levels. Weekly cash flow updates can help spot problems in advance giving you the best chance to resolve them and keeping your business healthy.

More cash flow articles

**Terms and conditions apply; please contact us for details.