Debtors The negative impact of late payment on cash flow is significant. It is important to have a clear procedure covering all the fundamentals so that there are no barriers on your side to swift customer payment. Check that invoices are raised promptly and contain all the information required by your customers. Carry out credit checks on new customers the business takes on. Know when you need to escalate the recovery process, and consider the merits of informal contact with debtors to find out why payment is late. Offering customers online payment facilities, such as direct debit or electronic transfer, has the potential to speed up the payment cycle. Creditors Make full use of contractual terms and consider whether there is scope to renegotiate longer payment terms, or to offer staged payments. Payroll matters Employment costs will rise with new minimum wage rates from 1 April 2023, when the hourly rate for those aged 23 and over climbs to £10.42. The employer National Insurance burden also increases, with the threshold at which employers start to pay Class 1 secondary contributions for employees, now fixed at £9,100 until April 2028. Reviewing headcount is an obvious response. But if the business does not need to maintain its current staffing level, redundancies may not be the only option. Short-time working, moving to a three-day week, rather than a five-day week, for example, may prove an alternative. In any such scenario, however, care is needed to comply with relevant employment legislation. Many businesses are also factoring non-cash enhancements, such as additional holiday, or time off to care for children or elderly parents, into remuneration strategy in order to control costs. Traction from the tax rules There are other areas that businesses might want to explore for the first time, especially where growth is anticipated, but cash is at a premium.
to fit it in before April, time pressure has been taken off and cash needs can be prioritised, instead. Remember though, that the clock is still running for the super-deduction and 50% special rate allowance – available only to companies. Qualifying expenditure here must be incurred before 1 April 2023. In general, asset replacement needs particular care in times of inflation. There is more than the usual outright purchase or lease finance question to bear in mind. Planning the replacement cycle takes on a new dimension for the sale of assets that have benefited from high levels of upfront tax relief via the super-deductions. With inflation pushing up sale proceeds, it’s possible that tax charges could apply on disposal. Stock and assets Choices around stock level can have a major impact on cash levels. Both understocking and overstocking carry risk. Understocking may feel better in terms of improved cash flow; but may lengthen the speed at which a business can respond, as well as putting heavy reliance on optimal performance throughout the supply chain. Overstocking ties cash up that could be used elsewhere. Reducing stockholding, perhaps by means of a flash sale, or by selling to a specialist company, may provide a welcome cash injection. The right level of stock for your business will be specific to your business and its current cash position. For established businesses with assets and a proven trading history, asset-based finance may provide another means of cash injection. Briefly, this is a type of debt-based finance, where funds are secured against the company’s assets. It includes invoice finance such as factoring; invoice discounting; supply chain finance; and asset-based lending. Asset-based lending involves the use of assets on the balance sheet, such as debtors, stock, equipment and machinery as security against lending.
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