Cash flow is the amount of money transferring in and out of a business. It is particularly important because without cash coming in, a business may not be able to pay its bills on time (even if it has a great product/service).
Good cash flow lets businesses negotiate stronger discounts with suppliers, invest in the business and develop and generate new business. Even if the service has been given or products have been delivered, cash flow can become an issue when invoices are not paid on time. When this happens, the business may find it cannot pay its own suppliers on time and this in turn can create issues throughout the supply chain.
Whilst a business may be entitled to receive payment for the work it has done, late or delayed payments can often lead to strain on the business, sleepless nights for the business owner and possibly result in the business becoming insolvent. This is a very real prospect facing businesses amidst the Covid-19 outbreak.
Even if a business has strict measures in place to complete work or deliver products, issue an invoice and manage and control the debt, they may need to chase the debt and engage with a professional. Consideration should be given to The Late Payment of Commercial Debts (Interest) Act 1998 which gives valuable rights to compensation including an implied term into commercial contracts providing for:
- interest on the debt at 8% above the Bank of England base rate
- a fixed sum for each outstanding invoice
- reasonable costs of recovering the debt
If your business is facing challenges in collecting any money owed please feel free to contact us.