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The Business Magazine July 2024
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Maximising your cashflow for growth

Saffrey Luke Hanratty & Hannah Mazrae
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Saffery explores techniques for managing cashflow to finance growth.

Pictured: Luke Hanratty, Partner and Hannah Mazrae, Partner

Growing a business comes with an increasing need for cash. While cash for investment is well understood, the requirement to increase working capital is often overlooked and is a key reason for business failure.

Many businesses use their existing working capital inefficiently, and there are often gains to be made to maximise this before turning to external financing.

The goal is to minimise potential cash tied up in inventories or debtors, and maximise creditors without damaging relationships. Where there are established relationships with suppliers, they can be open to discussions around payment terms; particularly if you can demonstrate that you’re not a credit risk and offer ongoing growth.

Reducing the administrative burden of credit control should be a focus for any growing business. Utilising automated statements of account and follow-ups on outstanding debts could improve recovery times.  Also consider early settlement incentives; it may be counter-intuitive, but it could be cheaper than paying overdraft rates.

Inventory should be kept at the minimum level possible without impacting customer service. If certain customers require large inventory holdings, then this should be used as a negotiating point in either rates or payment terms. And for any service provider; the quicker you can invoice work in progress, the sooner you can be paid.

While it is always advisable to prioritise paying HMRC on time, it is still possible to exercise good cashflow management with respect to those liabilities.

In general, holding payments until the due date can boost working capital. For corporation tax, ensure you are maximising deductions from full expensing of capital investment, and utilising brought forward losses. If your business operates through several different companies, you may benefit from consolidating to counteract the sharing of various thresholds, particularly following the changes to associated company rules.

For businesses not operating through limited companies, the broadening of the cash basis for income tax may offer an opportunity to defer tax if you are consistently paying expenses before receiving income. Similar schemes for businesses with turnover under £1.35 million can help to delay VAT payments.

If you are a frequent recipient of VAT repayments – then moving to monthly VAT returns can accelerate those receipts.

Using external financing tied directly to your debtor book can reduce the costs of borrowing. Options range from the most basic invoice discounting, where you effectively receive a loan against a percentage of your debtor ledger, to invoice factoring without recourse, where the lender effectively buys your debts off you. 

You will typically need to pay interest, service fees and other arrangement fees, as well as committing to certain credit checks.

For businesses with particularly large customers, reverse factoring can allow you to benefit from your customer’s credit-worthiness; and for businesses who export to overseas customers it is worth exploring the finance options offered by UK Export Finance.


Luke Hanratty

Partner

High Wycombe

E: [email protected] T: +44 (0)1494 464 666


Hannah Mazrae

Partner

Bournemouth

E: [email protected] T: +44 (0)1202 204 742


www.saffery.com


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