Don’t let cashflow and working capital hold back your 2018 aspirations


It’s that time of year again. The clock is reset and like me, you are probably thinking about all the goals and achievements you and your business are looking to achieve this year.

Perhaps you are looking at entering new markets, developing new products or expanding your workforce?

If so, it is more important than ever to ensure you have sufficient cashflow to support and aid your ambitions. This is particularly crucial in the face of the current economic headwinds which present added cost pressures in the form of increasing inflation and devaluing currency. In addition, given the likely future increases in the cost of borrowing it may also be a good time to review existing funding lines and cash sources to ensure they are still the most efficient and cost-effective way of obtaining the finance you need.

How you can maximise your working capital and cash position?

The key is understanding your businesses’ own unique trade cycle and ensuring you have the correct working capital structure employed when needed. It is also paramount to build up good relationships with suppliers, customers and other stakeholders to maximise your trading benefits. Below are some questions and key points to think about:

Trade Cycle

  • What is the length of my current trade cycle? Is there a big gap between when I pay my suppliers and when my customers pay me?
  • If so, how is this funded? Traditional funding lines such as secured overdrafts and loans may no longer provide the flexibility you need. Many businesses are now turning to more flexible and innovative solutions such as supply chain finance, invoice finance and trade/stocking finance.
  • Am I funding this gap myself? If I am, could my working capital be better employed elsewhere for higher return?
  • How can I shorten any trade gap? Can I change my terms of trade or possibly find a way to fund part of the trade cycle to get paid quicker?
  • Is there currency exchange risk? To mitigate this can my customers pay me in the same currency I pay to my suppliers or vice versa?
  • If I suffer from long lead times, can I find a way to work with my suppliers to shorten these?

 Suppliers & Creditors

  • Can I use supply chain finance to pay my suppliers immediately whilst retaining or extending my own repayment terms? Would this enable me to receive better / quicker service? Could I benefit from early settlement discounts?
  • Is my purchasing power restricted to credit limits? Could I use supplier finance to pay off trade accounts quicker so I can buy more to fuel my growth?
  • How many key suppliers do I have? Can I reduce reliance upon one or more suppliers to increase negotiating power? How I can make new or foreign suppliers more comfortable dealing with me and offer me better terms of trade?
  • Can I maximise my terms of trade? Even an extra 5-10 creditor days a year could create a significant working capital injection to fund new growth. – Ask me how Trade or Supply Chain Finance can be used to achieve this without paying your suppliers any later.
  • Can I find a way of somehow deferring key supplier payments until after my customer pays me?

Customers & Debtors

  • How can I encourage customers to pay me quicker? Would I be willing to offer early settlement discounts in return for prompt payment and improved cashflow?
  • Can I realistically shorten payment terms for some customers? Again, even an average of 3–5 days reduction in debtor days per year can significantly enhance working capital.
  • How can I better manage credit control? Are some of my customers using me as their bankers!
  • Will my business model allow for change in payment terms? Can I move to a model where I get paid in regular instalments rather than against ad-hoc milestones or dates? Can I deliver more quickly so they pay me sooner?

The above pointers will hopefully identify a number of ways you can maximise and increase both your working capital and cashflow this year to support future ambitions and aspirations. There is rarely a single fix and it may be that a number of the above points need to be considered for maximum gain.

It is also necessary to ensure your business has the correct financial structure in place to maximise available cashflow. The onset of alternative lenders and Peer 2 Peer markets have created a number of alternative avenues to explore. Sancus Finance is one such example, providing flexible and unsecured working capital & supplier finance that can be used in conjunction with existing funding lines. Our solutions increase working capital and can directly contribute to underlying profitability. To date we have lent over £700m to UK SME businesses and entrepreneurs actively helping them to grow, achieve and prosper.

With this in mind, if having a wider discussion about working capital and how to manage cashflow is of interest then I would be more than happy to see how we can help support you and your business.

Andrew Oppe

Regional Director, London and South East