New technology can help businesses with cash flow

6 Dec 2019

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Particularly in the early years, careful cash management is critical to survival – banks may be less willing to lend to newer businesses and more established suppliers and customers can exert less favourable terms on a relative new-entrant.

In the current political and economic climate, even for well-established businesses, it is becoming increasingly important to look to control costs and rationalise where possible.

Efficient cash management means a business will generally have a lower working capital requirement, be less vulnerable to fluctuating trading patterns, and have a commercial edge over many competitors.

Strong financial management means many things, including:

  • Maintaining a regular dialogue and having a good relationship with your bank. Ensuring the account manager is informed of any plans and potential need for extra funding as far in advance as possible and fixing or capping interest rates on any existing credit facilities;
  • Closely monitoring the credit facilities of customers and their compliance with those agreed terms;
  • Negotiating more favourable terms with suppliers, and ensuring that full use is made of those terms, but without exceeding them;
  • Having a back-up plan in the event a key supplier goes bust;
  • Regularly reviewing the cost base of the business and identifying areas that can be streamlined for greater operational and cost efficiency;
  • Planning investment wisely to make full use of available reliefs, allowances and tax breaks, many of which are designed to encourage businesses to invest;
  • Hedging exchange risk where the business trades in foreign currencies, or overseas, by fixing transactional exchange rates or using forward contracts, currency futures or options;
  • Effectively insuring the business against the risk of losses, which will depend on the sector the business operates in; and
  • Implementing a disciplined system for regularly monitoring and managing the finances of the business, with an appropriate accounting system.

Many businesses are already turning from traditional accounting systems to newer subscription and cloud-based solutions, with their flexibility, ease of use, integration with digital reporting for HM Revenue & Customs and wide range of plug-ins and add-ons.

Cloud accounting solutions such as Xero and Quickbooks, and add-ons such as Hubdoc and Receipt Bank for the processing and management of documents, are perhaps more widely recognised. However, there are an increasing number of plug-ins coming onto the market designed to feed into and from cloud-based accounting solutions to help businesses manage their cash flow.

We list just a handful of the many options open to businesses below:

Fluidly is a cash flow forecasting plug-in which uses artificial intelligence to extract transactional data from the accounting system and automatically and quickly prepare a future cash flow projection. With pricing based on the number of sales transactions a business has, this can negate the need for preparation of laborious spreadsheets to project cash flow.

Chaser is an app designed to automatically chase customers for payment, automating what can be a time-consuming exercise and using templates that you can set up in the system, personalise and tailor to specific customers. The system can also automatically attach copies of outstanding invoices or statements to a chasing email, and can be configured to send at particular times or on particular days, to escalate to more senior customer personnel after a certain period, and even send a thank you note once an invoice has been paid, all configurable to the customer. The system can also reconcile payments to invoices.

GoCardless is an integrated payment system that provides customers with an invitation to settle invoices, complete a direct debit mandate and set up a direct debit. The system can be configured to make one-off or regular payments, either automatically or to require customer approval. An online dashboard makes it easy for users to manage payments and the system can reconcile payments to the respective invoices.

Market Invoice connects directly into the user’s accounting system and provides a confidential invoice discounting service that automatically advances up to 90% of the balance of invoices raised and the balance when the customer pays. A monthly fee and commission applies. This is only available to business that are established as either a limited company or limited liability partnership and which have a minimum turnover of £250,000 and at least a year’s trading history. There are also additional credit control services and a fast, unsecured business lending solution, lending up to £250,000.

Iwoca is an online provider of credit facilities to small businesses via an automated lending platform. The platform provides loans of up to £250,000 and uses learning models to automatically assess businesses based on data that it extracts from cloud accounting solutions such as Xero and business bank accounts. A decision can be provided in minutes based on real time information. Typical terms are a 3% monthly interest rate and a maximum loan term of 12 months.

These new products are incredibly innovative and can greatly assist in the management of cash flow for a business, providing great flexibility, but they do all come at a cost. Careful consideration of the cost and advantages to the business is needed.

With the prolonged uncertainty around Brexit and what the future might hold in terms of trade deals, funding and availability of labour, to mention just a few, there will inevitably be businesses that struggle to adapt.

‘Only the strongest survive’, as they say, and the strongest businesses will be those that are in control of their cash flow, costs and finances generally.