From XU Magazine, 
Issue 32

How to manage cash flow during uncertain economic times

The uncertain economic environment is putting cash flow under the spotlight

Helping clients manage cash flow can ensure they’re able to continue to trade and reach their growth objectives.
This article originated from the Xero blog. The XU Hub is an independent news and media platform - for Xero users, by Xero users. Any content, imagery and associated links below are directly from Xero and not produced by the XU Hub.
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Over the last few months, the economy has taken a nosedive.

The Organisation for Economic Co-operation and Development (OECD) recently announced that they forecast growth in the UK will grind to 0% next year. They also predict  that the UK  is set to be the slowest growing economy in the G7.

This grim outlook has been due to a combination of factors, including inflation rising to its highest level in forty years. On top of that we’re seeing energy costs spiralling out of control, complications around the UK’s future relationship with Europe and the war in Ukraine.

Similarly to the pandemic, accountants now need to step up to support their clients. They must help them manage their day-to-day business and planning for expansion activities, such as internationalising or responding to the economy’s changing needs.

In the first instance, accountants should seek to help their clients manage their cash flow. This will ensure they have enough cash in the bank to continue to trade and resources to invest in their growth.

Businesses will then be able to cut wastage, bolster their working capital and secure their long-term sustainability.

Review and eyeball costs

Accountants should manually scan their clients’ costs to make suggestions about unnecessary spend that can be cut immediately or in the near future to bolster cash balances. For example, this may include office costs. Office rent is one of the highest outgoings for businesses, and hybrid working means there is likely to be scope to downsize and cut costs if agreements can be renewed annually.

Another category which may have wastage is SAAS software. These subscriptions can be pricey and tend to be ongoing unless explicitly cancelled. Several licences may no longer be being used due to employees having left. It’s worth suggesting regular reviews from their finance teams to monitor which subscriptions are live and who is managing them. Alternatively, there may be some vendor subscriptions which were only ever taken out on a free trial basis that started being charged for, unknown to clients.

Review performance of marketing activity 

In today’s uncertain economic environment, it’s more vital than ever for marketing to demonstrate a positive return on investment. Online spend that leads to new sales and customers should remain. However, it may be time to question some of their brand marketing activities if cash flow is stretched. Some of the expenditure related to brand (such as billboard advertising and in-person conferences) that demonstrates eminence and awareness may need to be put on hold to conserve cash. It may also be worth considering where to spend intelligently – where are your clients’ competitors reducing spend?

Consider outsourcing

Fulfilling staffing needs may have become particularly tricky due to the Great Resignation. Many employees left their companies en masse and wages increased due to the war on talent over the past twelve months

Additionally, clients need to be flexible with their staffing requirements because it’s harder to predict the demand for their products and services over the medium and longer-term.

Accountants should ask clients to consider outsourcing to be more agile with their spend so that they can flex their needs (and associated costs) without long-term commitments.

One area for clients to review outsourcing options is their finance function. This can reduce overheads and allow accountants to become more embedded within their clients’ businesses to advise them better. By managing finance functions in full, accountants will have more regular touch points with clients, rather than speaking to them monthly.

Go Cashless 

Consumer, retail and hospitality businesses may benefit from moving towards taking payment via card only. This has become more acceptable and mainstream during the pandemic (contactless limits have gone up from £30 to £100) and eases cash flow by increasing the number of card payments clearing in seconds with Faster Payments.

This will boost cash balances by overcoming the delay associated with having to deposit  takings in person at high street banks. Moving to cashless may also help reduce client overheads by not needing to set aside resources to handle and bank cash. 

Monitor credit of new and existing customers

Working with clients to monitor the credit status of new and existing customers will limit the risk of businesses getting paid late or not at all.

Accountants can provide this service by partnering with credit bureaus to flag changes in their credit scores and be informed of adverse filings and information. These include County Court Judgements (CCJs), alongside the instance of annual accounts being filed late.  

Alternatively, working with end-to-end credit control platforms like Chaser can help clients recover bad debt. Credit control platforms help automate the recovery of bad debt, and in worst-case scenarios, threaten legal action to recover funds. 

Implement cash flow forecasting services

To get a continuous overview of the cash health of clients, incorporate cash flow forecasting services. Accountants and their clients can get a real-time view of cash balances and future forecasts by using cloud cash flow providers, including Futrli and Float.

These vendors sync instantaneously to core cloud accounting platforms (such as Xero, QuickBooks and Sage) and mimic their chart of accounts. This makes managing forecasts light touch, with minimal data entry required. They also can predict future cash balances based on trends around historic payments from customers. For example, some may pay 30-day invoices, 40 days on average.

Accountants should use these forecasts’ output to develop strategies to identify and plug short-term cash gaps.

Support clients with working capital 

Providing tips on working capital management can help businesses collect cash faster and hold onto funds for longer. Where possible, extended credit terms  should be sought for long-standing suppliers as well as new ones. Alternative suppliers could be found for any requiring particularly prompt payment. Clients’ customers could be offered small discounts if they pay for goods or services upfront. For example, those who pay 30 day invoices within 14 days could be offered a 5% deduction. Payment terms can be a tricky business but it’s worth renegotiating and discussing alternatives regularly to boost a client’s cash flow.

Review financing options 

It’s useful to help clients review their financing options for cash gaps or if upfront capital is needed to invest in business expansion, and cash receipts aren’t sufficient to fund this. 

Assessing options with an alternative lender, such as MarketFinance, rather than a high street bank will enable accountants and their clients to access finance faster, more flexibly and cheaper, without leaving a permanent mark on credit scores.

Standard loans of up to £500,000 can be accessed, as well as invoice financing on an invoice-by-invoice basis, rather than the entire debtor book being managed.

Why leave it there?

To find out more about MarketFinance

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