Rescheduling payments

1. Paying suppliers later: the business asks a supplier to extend its credit terms from 30 days to 60, or to split a large invoice across two months. It fixes a shortage immediately and costs no interest, but it spends goodwill: the supplier may refuse, withdraw its early-payment discount, or insist on cash up front in future, and a firm that pays late repeatedly can lose the credit it depends on.
   1. Bargaining power decides who can do this. Tesco is large enough to agree long payment terms with its suppliers, so it sells most of its stock before it pays for it, while a single corner shop on 30-day terms has no such room and has to ask as a favour.
2. Getting customers to pay sooner: the business invoices the day a job finishes, telephones overdue debtors, and shortens the credit it offers from 60 days to 30. It pulls forward cash the business has already earned, which is the cheapest cash available, but chasing hard annoys customers and tighter terms can send them to a rival who offers easier ones.

Reducing cash outflows

1. Cutting costs: overtime, agency staff, advertising spend and any non-essential purchase can be stopped this month, which lowers outflows straight away and permanently rather than just delaying them. Cut into the wrong things and the damage lands later, because dropping advertising shrinks next quarter's sales and skipping maintenance turns a service into a breakdown.
2. Delaying a purchase: a planned £8,000 van or shop refit can be postponed until the cash position recovers, which removes a large single outflow at no cost in interest. The business runs on older equipment for longer, so repair bills and downtime rise and any growth the purchase would have supported is put off.
3. Leasing instead of buying: renting equipment for a monthly fee replaces one large payment with small predictable ones, so the business gets the machine without draining the bank. Over several years the total paid is higher than the purchase price and the business never owns the asset, so it cannot sell it later to raise cash.
4. Buying stock in smaller batches: ordering weekly rather than monthly keeps cash in the account between deliveries instead of tied up on the shelves. Small orders lose the bulk discount, delivery charges rise, and a busy week can leave the shelves empty and the customer walking out.

Increasing cash inflows

1. Running a sale: discounting slow-moving stock converts goods sitting in the stockroom into cash within days, which is faster than any other route. Each item sold now earns less profit, and regular discounting trains customers to wait for the next sale, so a business that does it too often damages its normal prices.
2. Offering a discount for early payment: taking 2 per cent off an invoice settled within 10 days gives credit customers a reason to pay weeks earlier than they otherwise would. The discount is revenue given away on money the business was going to receive anyway, so it is only worth it if the cash is genuinely needed now.
3. Selling an unused asset: a spare van, an idle machine or surplus land can be sold for a lump sum with no borrowing and no repayments. The asset is gone permanently, a quick sale usually fetches less than it is worth, and the business has to buy or hire one again if trade picks up.
4. Asking for deposits: taking 30 per cent up front on made-to-order work brings cash in before the materials are bought, which is how many kitchen fitters fund each job. Customers may refuse, or choose a competitor who asks for nothing until the work is finished.

An overdraft or a new source of finance

1. An overdraft is the natural fix for a short gap, because the business dips into it only on the days it is short and stops paying for it the moment customers' money lands. Nothing has to be cut, no supplier is upset and no customer notices.
2. It is the dearest way to borrow per pound, there is usually an arrangement fee, and it is repayable on demand, so a bank that loses confidence can withdraw the facility exactly when the business needs it most.
3. For a shortage lasting several months, a short-term bank loan, extra capital from the owners or money from family and friends is cheaper and more secure than sitting at an overdraft limit all year.
4. Every borrowed pound becomes a future cash outflow with interest on top, so new finance buys time. A business that consistently pays out more cash than it collects has to fix its inflows or its outflows, because borrowing only postpones the day it runs out.

Choosing between the solutions

1. Start by deciding whether the forecast shows one negative month between positive ones or a run of them, because a timing gap deserves an overdraft or a rescheduled invoice while a lasting shortage needs costs cut or prices raised.
2. Check how fast each option delivers, since an overdraft can be arranged in days, a debtor can be chased this week, but selling premises or negotiating new terms takes months.
3. Then ask which relationship the business can least afford to damage, because a firm with one specialist supplier should pay it on time and borrow instead, while a firm with a dozen interchangeable suppliers can negotiate harder.
4. For Thornbury Tools the better answer is a small overdraft rather than delaying the supplier, because the gap is only £1,300 for a single month and March's takings repay it, so a few pounds of interest is a smaller price than risking the trade credit the shop relies on for the rest of the year.