overdraft for cash flow

[Twolfe]

Hi

I have a business account with Santander for my limited company (which has been in business for a year) I ran this business as a soletrader for 5 years before that.

My outgoings have recently increased by a substantial amount and I am about to run into cash flow issues, I have money due in but for at least 4 to 6 weeks.

I don't have an overdraft currently and just called to set one up and was offered £1000 overdraft (based on money paid in over the last 6 months), that will nowhere near cover what I need and feel it's unfair to judge the last 6 months income as my income is very sporadic.

I will defiantly be changing banks as there are a few things I'm not happy with at Santader but that doesn't solve my cash flow issue. Anyone been in a similar situation that could advise a good solution? I've looked at invoice factoring but don't feel comfortable with that.

 

[Chris Ashdown]

The best bet is to do what you should do with any problem talk to who ows you money, explain things are tight and is there anyway they could help by bringing payment forward, If you talk to the person who pays you may well find they will help especially if they need you again. all companies go through a tough time now and again

Alternativly take the £1000 and back it up with any cards you may have

 

[Chrismckay]

Depending on what your business does you could try some of the following

> look at your stock levels, can these be reduced, turned into cash. Old stock is a big drain on cash

> Debtors - encourage your debtors to pay faster - offer a discount (may not be good for profit but will help cashflow) for early payment or cash up front.

>Use the Late Payment of Commercial Debt Act - charge interest and fees for overdue invoices.

>talk to your creditors about spreading your payments

>Invoice customers as soon as possible, get to know their payment cycles and what information they must have on the invoices to get them paid

>get uptodate management information - are you making a profit, what is happening on the balance sheet? Understand where you cash is going

> prepare and update a daily cashflow forecast covering at least the next 2 weeks, 1 month, 3 months, reconcile to the bank daily so that you know what cheques are still outstanding.

And finally, look at the big picture. Is the business stuck in a downward trend or is cashflow just a temporary solution.

Hope this helps.

 

[Twolfe]

Depending on what your business does you could try some of the following

> look at your stock levels, can these be reduced, turned into cash. Old stock is a big drain on cash

> Debtors - encourage your debtors to pay faster - offer a discount (may not be good for profit but will help cashflow) for early payment or cash up front.

>Use the Late Payment of Commercial Debt Act - charge interest and fees for overdue invoices.

>talk to your creditors about spreading your payments

>Invoice customers as soon as possible, get to know their payment cycles and what information they must have on the invoices to get them paid

>get uptodate management information - are you making a profit, what is happening on the balance sheet? Understand where you cash is going

> prepare and update a daily cashflow forecast covering at least the next 2 weeks, 1 month, 3 months, reconcile to the bank daily so that you know what cheques are still outstanding.

And finally, look at the big picture. Is the business stuck in a downward trend or is cashflow just a temporary solution.

Hope this helps.

Thanks Chris!

My business has been ticking along nicely, I offer a service and my outgoing were minimal. I'm looking at expanding and at least doubling my turnover. My expenses are a lot higher and are made up of office rental, freelancers, printing and server rental.

It's relative as the money due in easily covers my costs, with a very healthy profit but some of my projects are on-going and my current terms are - payment within 30 days of completing a project. Going forward I realise I need to structure this differently, asking for a deposit up front, a percentage on completion with 30 days to pay the remainder. Should be fine for new clients but existing clients - this is going to be more difficult as they have been used to 30 day term for the past 6 years!

Also, this doesn't solve my short term cash issue. Estimated outgoings over the next 3 weeks - £9500. Income due in 4 to 6 weeks from now £35,000.

Finally, a lot of my clients are big, corporate companies and have fixed payment terms, so even if I was to speak to them I don't think they'd change their terms.

 

[Geoff T]

OP- what about a 0% credit card? pay for everything by c/card, get it transferred to the new card - gives you time to get paid at no cost...

(would depend on your current status, mind)...

 

[Chris Ashdown]

Have you gone to your business manager at the bank with the invoices and maybe the last couple of months management accounts to show them the problem and why it's just short term, these days they like to see paper work to back it up, dont phone them but go in and talk face to face

 

[oliver3487]

natwest might give you a larger overdraft. They gave us a large one with no problems.

 

Lots of good advice given above

It is seldom a great idea to change banks to increase borrowings, particularly in the current climate.

What are your reservations about invoice finance? It is actually the tool specifically designed for your situation - most of the negative press is because companies take it on in desperation when business is falling off a cliff - and you can't stop the inevitable!

I have no direct experience, but have heard some good things about fundingcircle.com, so you could try them.

 

[Geoff T]

or - if invoice finance is an option - try IanJ (member who knows the in's and out's)!

 

[dawn lowth]

Hi

If you wanted any assistance to enhance your cashflow. I run a consultancy business where I help small businesses improve of their existing credit control procedures. If you are interested I am in the Manchester area, please contact me.

 

[Ian J]

If your working capital is locked up in your debtors then maybe factoring or invoice finance would be appropriate.

If so I'm happy to discuss it with you

 

[Transport Broker]

Speak to your business manager directly - they have more power than the call centre staff and are able to make decisions based on the real world. I recently had a similar problem and the call centre staff were just sticking to their script without taking into consideration the actual issues I had. Five minutes speaking to my business manager at Barclays and the issue was resolved completely! That's the difference and I won't be calling the national number in future, I'll go stright to my business manager.

 

[Admor]

This may be a bit late as I see the post is over a month old, however:

1) I believe debtors of £35k is too low for most Invoice Discounting providers, especially as they do not generally finance contracting & they disallow for aged debts, concentration risk etc
2) It sounds like you need a fairly simple cashflow forecast, supported by your invoices and other accounting information to show you are making a profit.

 

[Ian J]

1) I believe debtors of £35k is too low for most Invoice Discounting providers, especially as they do not generally finance contracting & they disallow for aged debts, concentration risk etc

You believe wrongly

 

[Admor]

You believe wrongly

You believe wrongly.
http://www.invoicedi.scounting-uk.co.uk/unapproved_debts.htm

 

[Ian J]

You believe wrongly.
http://www.invoicediscounting-uk.co.uk/unapproved_debts.htm

That's my site that you're quoting from

The point that I was making is that there are a number of factoring and invoice discounting companies out there but many of them are dreadful and I have pointed out some of the tricks that they get up to.

They aren't all like that and I earn my living by directing clients to the wheat rather than the chaff

 

[mark dee]

Dont sell yourself to the devil that is factoring/invoice discounting.

Go to your bank manager (not a call centre) with a proper detailed cash flow from the next 6/12 months. Try to work out a long term, not a short term elastplast type fix such as an overdraft. Remember an overdraft can be called in at any time and there is no guarentee it will be renewed.

If your company requires long term working capital then a loan is the best option, but then you will need security which Im not sure you have.

 

[Alan R Price]

Dont sell yourself to the devil that is factoring/invoice discounting.

No disrespect, Mark but I know lots of businesses that factor or discount their invoices very happily. It's not a panacea for all cash-flow requirements but in my experience it is particularly useful for growing businesses because it is flexible and grows with the business' requirements. There are situations where more permanent capital is required and sometimes factoring is the trade-off where the directors are not prepared to put up their own funds or give guarantees.

Of course, there are bad and good factors - the thing to do is to research who the good ones are - particularly by testimonials and personal recommendation. Agreed, it can appear expensive but there are benefits which offset the costs.

I am not directly involved in banking or finance, by the way.

 

[Galmac618]

The options I would suggest (some mentioned above already) would be to try renegotiate your credit terms (both granted to you and given by you). A discount on early settlement would help get money in faster, and you can try push back when you need to repay to improve your cashflow. Even though it isn't much, take advantage of the overdraft, every little bit helps, but at the same time start looking around for a new bank; your current bank may up their offer with the threat of you leaving. Also, invoice discounting would be an option if you have a regular stream of invoices on you books.

 

[Tax-UK]

shop around there are others bank with more generous overdrafts, HSBC for example did advertise sometime ago that they would offer up to £30k overdraft and one of our clients managed to get a £45k overdraft with natwest (after signing the deeds of their house and everything else)

 

[KJL126]

I am involved in business finance.

Cash flow products, factoring and invoice discounting being the common ones are very useful tools for many businesses, particularly those who are growing, and are the wrong option for others. There are many providers in the market, offering a wide range of terms taking advice is helpful if you are new to this.

The banks for many years have been trying to move away from overdrafts, hence their reluctance to grant them. I agree with an earlier comment moving banks chasing an overdraft is fairly futile.

The terms of a cashflow agreement tend to be tailored to the financial performance of the company. However when the advice offered is to dangle a discount to your debtors to encourage early payment it does raise a smile. What size discount is going to induce them to pay? Are we looking at between 5-10%?

I recently handled a case where a small consultancy decided to offer 5% discount on all their invoices with mixed results. The factoring solution costs them 3% having negotiated on their behalf not to include a client who is a prompt payer. So they receive monies more quickly, don't pay for those where there is no need, and it doesn't cost them as much.

Factoring still seems to carry a stigma as being a desperation move by failing businesses, the last few years has shown that the failing businesses are not accepted by the banks for factoring/CID, so this view of a good management strategy for many is changing.

 

[London-Help]

I work for a large PFI company who use a lot of consultants on our projects.

Three things that might help you get an increased overdraft are:
1. Get a letter of assurance from your customers to backup the £35k prospective income, We do this quite alot. If you haven't already raised the invoice.

2. Doing a proper cashflow and profit and loss forecast for the next 12months.
Taking these to your to you account manager at Santander may well work wonders in getting you an increased offer.

Alternatively:

3. Explaining your cashflow difficulties to your customer and offering a discount for settling £18k to tied you over for six weeks and offer a reduced success fee of say £13.5k (giving a 10% discount) would work wonders in getting some money from your corporate customers.

Going forward you should always try and work out a payment schedule where you get paid an amount at each of the key milestones of the project plus a success fee upon completion. All of our consultants do this to aid there cashflow rather than relying on overdrafts or invoice financing all of which will eat into your profits.

Please let me know if I can help further.

 

[malcolmpiper]

I appreciate I’m a little late to this thread, but we do have a tailor made solution for these requirements.


Tandem Invoice Finance Limited specialises in the niche sector of Selective Invoice Discounting. Our invoice finance services allow businesses the flexibility to release capital from single invoices without committing to long-term contracts.



Our services can be used as and when required, allowing businesses to match our facility exactly to their cash flow needs.



Our pricing is simple and transparent, and once an invoice is settled, there is no ongoing obligation to reuse our facility, but the fact that many clients do underlines the high standard of service that we provide.


To find out more about how Tandem Invoice Finance Limited can help your business, contact Malcolm Piper on 01243 520940 or [email protected], or visit www.tandemuk.com.

 

[Adarsh Shah]

I really feel you should look at Invoice finance for your business.

The facility will grow with your business!

I can help you out with a free overview and tips, if you would like.

Contact me..

Adarsh Shah
cashflowconsultancy . com