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Company Cash Flow Problems and How to Solve Them

23rd August, 2022
Keith Steven

Written ByKeith Steven

Managing Director

07879 555349

Keith is the author of the content on this comprehensive rescue, turnaround and insolvency website. He is the managing director of KSA Group Ltd - a specialist firm of turnaround and licensed insolvency practitioners. Keith was nominated for Turnaround Practitioner of the Year 2014 at the National Insolvency and Rescue Awards in 2014.

Keith Steven
  • What is a company cash flow problem?
  • What are the common causes?
  • How can you prevent and solve cash flow problems?
  • What options are available to companies that cannot solve immediate cash flow problems and face insolvency

What is a company cash flow problem?

A cash flow problem is simply when there is not enough money coming in to pay for outgoings such as rent, wages and suppliers. So the “flow of cash” is in the wrong direction.

What are the common causes?

  • Poor financial record keeping and ineffective cash flow management
  • Over leveraging your business. i.e putting too much borrowed money in.
  • Agreeing to high-interest-loans
  • Seasonal highs and lows – what is your seasonal cycle?
  • Late raising of invoices and late payments
  • Declining sales
  • Unexpected bills/refund requests
  • Over-reliance on a small number of customers
  • High overheads
  • Inexperience, greed and naivety
  • Poor credit control procedures and credit checks
  • Extending too long a line of credit

An interesting article by highlights how financial directors will need to be plan and predict possible cash flow problems.  The current energy crisis is difficult for companies that are heavy users of energy as they are seeing their costs go up rapidly.  Given that most of your competitors are likely to have been hit as well it might be a good time to consider raising your prices.

Below is an interesting video on how high growth and profitable companies can have cash flow issues


How can you prevent and solve cash flow problems?

  1. Know your cash flow inside out, be aware of the most up to date position. See our free cash flow template, for an easy, reliable, speedy and helpful tool. Updating and reviewing this daily will allow you to notice any incomings and outcomings – if you notice you have a future deficit of cash flow, then you can call in turnaround advisors like ourselves, on 0800 970 0539, who can help you to prepare and have a plan in place.
  2. Cut costs.This should be planned carefully – do not just cut away at everything! Assess the business and question each expense – What expenses are not as essential? Do you need to be in a high rent location? Or could you move to a cheaper location? Employees can be a large expense– do they do too much overtime? Similarly, put the pressure on suppliers and encourage them to offer a better deal to save you money, as they want to keep your custom.
  3. Raise prices. In business you must work to get a good price for your product/service otherwise what is the point!  You should take into consideration the effect a price rise would have on customers. What is your price elasticity? If a slight price increase would push customers away to competitors and lose their loyalty, is it really worth it?
  4. Have a good invoicing system. Invoice daily if you can – the quicker you invoice, the quicker your company gets paid. Similarly, use invoice factoring or discounting. Once you raise an invoice, you can draw down up to 70% of the value, straight from the factor. Use systems such as Xero, Sage and Quick books to see who owes money to the company. Cash can then be drawn down quickly. A day after the payment is due, remind the customer they need to pay via a letter, email or call. Then phone every day until you get paid – using automatic reminders on your accounting system if needed… remember IT’S YOUR COMPANY’S MONEY so be sure to chase it up!
  5. Liaise with suppliers. Do not allow red letters to multiply. Using a cash flow forecast will show in advance when your company cannot pay its bills. When businesses have to change their payment terms, suppliers start to get upset. You should offer to pay something on account until you know the whole bill can be paid. If this is not done you may face legal action for non-payment.

What options are available to companies that cannot solve immediate cash flow problems and face insolvency

If your issues are too severe and cannot be fixed by cutting costs etc as described above and creditors are pressing then there are options.

Plan A or time to pay

If creditors are threatening legal actions, it’s worth looking at what we call, Plan A. This is an informal deal with creditors as a way to pay back debt over a relatively short time period. We may be able to arrange a Time To Pay (TTP) deal with HMRC on your behalf if you’ve fallen behind on VAT and PAYE payments.

Company Voluntary Arrangement (CVA)

Similar to Plan A, a CVA is a formal deal made with creditors to ensure debt is repaid over a set time-frame. The arrangement protects your company from legal actions and is a powerful restructuring and refinancing tool. Unlike a Time To Pay deal, up to 60% of unsecured debt can be written off. For a detailed CVA guide, click here.

Pre-pack Administration

If the company is under threat from an aggressive creditor, selling the company in a pre-pack administration deal to a third party may be the best option. This ultimately gets rid of debt and allows the business to continue. It can end those sleepless nights quickly! Read our step-by-step guide here.

Worried Director What Will Happen To Me After Liquidation?

in Company Liquidation What is …?

"A man in the pub said I cannot be a director of any other company if I liquidate my company. Is this true?"Actually, this statement is entirely false! Misconceptions like this frequently arise from individuals with limited understanding of the subject matter. Such misinformation can cause undue anxiety for directors considering liquidation, fearing it might personally affect them. Guess what? Listening to bar room experts, inexperienced accountants, or no insolvency specialist lawyers can stop decisions being made, this failure to make a decision is really what could land you in trouble. So how will liquidation affect me and how long does it take? Having a limited liability company means that the directors have little risk (or limited liability) if the company fails, as long as they have acted properly and acted in time. What is more, if as a director, you have been compliant and on the payroll for many years, you can actually claim redundancy from the government like any other employee. But, and it is a big but, if you fail to act in time, fail to act reasonably, fail to keep books and records, continue taking credit KNOWING that the company cannot possibly repay it, then you ARE at risk of personal financial loss or worse such as losing your house. So, act now and get help for your company and more importantly start reducing your own risks.Voluntary liquidation is the quickest most efficient way to deal with an insolvent company that has no future. As a director of an insolvent company, you are at risk if you do not act. This risk RISES the longer you don't act to put the company into liquidation.If you fail to act and the company is wound up by the creditors (compulsory liquidation) then the Official Receiver (OR) will be appointed to liquidate the business and he or she will investigate the activity of the directors and the business over the last 2-3 years. This is known as a conduct report on each director.  If the OR can prove there was wrongful trading where, for instance, you have taken credit from a supplier or took deposits from customers when you knew that it was highly unlikely that you could pay them back, then you could be made personally liable.This is known as the "lifting of the veil of incorporation" that protects directors under limited liability. If this happens then you could made liable for PAYE, VAT and creditors monies from the time that you should have known the company had no reasonable prospect of surviving the problems it faced.Additionally, the directors may face disqualification proceedings under the Company Directors Disqualification Act 1986 for up to 15 years, they can be fined and may face the loss of personal assets like your home, or even personal bankruptcy.Look, if you as directors have acted naively you may not know that you have broken these laws, but now you do know, it is vital to ensure that you protect yourself as a director by acting quickly to cease trading and put the company into voluntary liquidation; or consider a company voluntary arrangement if the company is VIABLE if the problems are solved. What is Creditors Voluntary Liquidation and what does it mean for me? In short, liquidation usually means, the company's trading stops and it's assets are turned into cash or "liquidated".All other possible liabilities, like employment liabilities, landlord's rent or payments to lease companies are stopped. It really is the end of the company, but the "business" may survive if a phoenix is organised. Liquidation is a powerful way to END creditor pressure and let you get on with your life. What if I have signed personal guarantees? If you have signed personal guarantees or indemnities to lenders, then the liquidation could lead to them being called in if the bank cannot get its money back from the company. There is little that can be done about that, but you should not delay decisions on liquidation to try and prevent a PG being called in: just think what ALL of the company's debts landing on your shoulders would do. Also it should be noted that HMRC now rank ahead of floating charge holders in any liquidation since December 2020.  Consequently, this may well mean that lenders that you have personally guaranteed will get less recovery hence exposing you more.All banks will agree a deal to repay the PG over time - provided you work with the bank to reduce their exposure.One great piece of FREE advice - always make sure that ALL tax returns, VAT returns and annual returns have been completed and sent in and that other "compliance" issues are dealt with wherever possible. These are important processes and will help protect you as individual directors. It shows that you have been acting properly.  I have heard about directors being able to claim redundancy in liquidation If you have been employed by the company and made payments via PAYE then you will be able to claim redundancy from the government and this is in fact a very simple process (20 minutes to fill out a form and we can help with that) so there is no need really to employ a third party to make a claim.  This process has been open to fraud so the HMRC are cracking down on operators that claim to be able to get money back when there is not enough "paperwork".  It isn't worth the risk.  If it sounds too good to be true then it probably is!You need to learn more about the options. This is clearly a general guide so, if you have any worries at all, please, just call us and we will talk you through the situation free and with expert guidance for your situation. Call one of our advisors or if you prefer, call our IPs (insolvency practitioners) now:Just one CALL will help relieve the stress and get you out of the mess.Why not call 08009700539 or 020 7887 2667 now?We could help you start the liquidation process today.(8.15am till 5.00pm; Out of hours call on 07833 240747, Wayne Harrison (IP)  or Eric Walls (IP) on 07787 278527)Finally, please remember this: NO BUSINESS is worth losing your health, relationships, marriages or your children over. Act properly, take advice, get the problem sorted and then get on with your life. In a little while the stress will go and you can focus on other things that are more important.Want more information on liquidation? Get our new free 2023 Experts Complete Guide to Creditors Voluntary Liquidation that covers Bounce Back LoansWe are experts in liquidation, voluntary liquidation, administration, pre-pack administration, business rescue, corporate rescue and company rescue, we can help solve your problems but only if you talk to us. Call 0800 9700539 for help.or email us your worries at 

Worried Director What Will Happen To Me After Liquidation?

Notice of Intention To Appoint Administrators

A notice of intention to appoint administrators is when the company files a document to the court to outline that it intends to go into administration if a solution cannot be found to its immediate financial problems. It can be used as part of the pre-pack administration process as well as used to restructure a failing business to avoid its liquidation.

Notice of Intention To Appoint Administrators
Man with umbrella

What Is A Winding Up Petition By HMRC or Other Creditor

A winding up petition is a legal notice put forward to the court by a creditor. The creditor petitions to the court if they are owed more than £750 and it has not been paid for more than 21 days. The application, in effect, asks the court to liquidate the company as they believe the company is insolvent.

What Is A Winding Up Petition By HMRC or Other Creditor

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