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Cash flow is the lifeblood of a business and when it’s restricted it’s often due to poor debt collection. A robust debt recovery strategy can make a considerable difference to the financial state of a company, however, and allow it to operate with more freedom.
Efficient debt collection systems are easy to implement and should be conveyed to all staff members involved in this business area. When a company operates in a unified way its chances of success improve and debtors know that their late or non-payment won’t be easily tolerated.
It’s also important to be proactive rather than reactive where debt collection is concerned, as acting too late can lead the business into severe financial difficulties. So why is effective debt collection so important?
More working capital to function day-to-day
Having sufficient cash to operate the business day-to-day is fundamental to survival and provides the foundations for a company to thrive rather than simply surviving in its market.
Monies to implement strategic plans
Company cash flow needs to be reliable to map out and implement strategic growth plans. Without strong debt collection procedures in place, the business cannot take growth for granted.
Better credit rating
If the company cannot collect its debts it faces the possibility of falling into arrears with its own liabilities. Being able to pay the bills as contractually required allows the business to maintain a good credit rating and can provide broader access to finance with favourable terms.
Avoids financial distress
It’s easy for a company with poor cash flow to experience financial distress and slide into insolvency. Collecting debts efficiently supports business finances and provides a buffer against potential liquidation.
Improved customer relationships
When a business has a trusted system in place to collect payments and methods to avoid bad debts, such as offering a discount for early payment, it can build trust with customers and improve relationships for the long term.
UK Business Finance can offer reliable independent advice that’s tailored to your business, helping you to improve your debt collection results where necessary. Please contact one of the team to arrange a free consultation and let us get your business onto a firmer financial footing.
We work across a wide range of sectors throughout the UK, providing specialist advice to each sector.
Why use a commercial finance broker?
A commercial finance broker plays an important role for businesses looking for funding. They can source the most suitable types of finance using a whole-of-market search strategy whilst also accessing the best deals and lenders.
What are cash flow forecasts and why are these important when obtaining business funding?
Operating with positive cash flow helps your business to pay its bills, conduct day-to-day trade with minimal issues, and plan confidently for the months and years ahead. But how do you know that there will be sufficient cash available when it’s needed?
Good debt vs Bad debt
Managed well, debt can improve your credit rating, enable expansion, and stabilise cash flow. It’s the backbone of growth but with so many different types of borrowing now available, it’s important for your business to carry ‘good debt’ rather than ‘bad debt.’
How to best prepare my company for a finance application
When preparing your company for a finance application, it’s key to present the business in its best light whilst also providing realistic projections, your plans for the funding, and how it will help the business grow.