How accountants can help their clients with cash flow challenges

How accountants can help their clients with cash flow challenges

Accountants play a crucial part in detecting cash flow problems early, so when it comes to quickly bridging a cash flow gap, what financing options could your client look into?

The Christmas and holiday season is slowly approaching and many businesses have started preparing by ordering new equipment and additional stock. This can lead to spending beyond their means and turn into a cash flow trap if not managed with care.

A common mistake many businesses make is addressing their cash flow challenges too late. The danger? Failing to act in a  timely manner can lead to financial difficulties, and in worse cases scenarios to insolvencies or liquidation. If a business is unable to pay its staff or relevant bills on time, it is more likely to run into serious financial problems further down the line.

Accountants can play a crucial part in detecting cash flow problems early and come up with ways to quickly infuse capital. That way, they help their clients prepare for uncertainty and find solutions before the effect of a negative cash flow can be felt. The result: a financially stable business and a happy client willing to accept additional help next time around.

So when it comes to quickly bridging a cash flow gap, what financing options could your client look into?

Overdraft or credit card

Many UK businesses have an overdraft set up for their business bank account or hold a business credit card. Both can help them with seasonal trends and short-term cash flow challenges. A main benefit of these options is that the outstanding balance can be paid back after one month interest-free.

That said, businesses quickly stretch their limits once they need larger sums or want to borrow money for longer than a few months.

Invoice finance

In order for businesses to access owed money faster, invoice finance lenders advance 80-90% of what an invoice is worth. If your client regularly invoices businesses, this could be a good source of short-term funding and can help alleviate cash flow problems.

However, this funding method only works for businesses who sit on commercial invoices. If a business works primarily with consumers, they’ll have to look for finance elsewhere.

Unsecured business loan

Apart from the above methods, most business loans – in particular longer term ones – are secured against commercial assets, personal assets or require a personal guarantee from a business owner. This has been long-standing practice. There are some lenders, however, which offer fully unsecured short-term loans to established and profitable businesses, without the need for a personal guarantee.

Given that the lender takes on a considerably higher risk, loan assessment criteria are stricter. That said, many businesses are glad to receive a short-term loan without having to put an asset or their house on the line.

For example, we recently worked with Vintage TV, one of the most prolific music TV channels in the UK. Over the past eight years, Vintage TV has raised several million pounds of investment, but when a swift cash injection was needed, it turned to alternative funding platform Spotcap.

David Pick, founder and CEO of the channel, recently shared his views on working with the lender in the Guardian: “We looked at traditional lenders but it proved so time-consuming and expensive to service their constant requests that we decided to pursue other options. I was recommended Spotcap by a firm of accountants. They took a look at our accounts and just over a week later we had everything we’d requested. It was that simple. I was extremely impressed.”

Detecting a client’s cash flow challenges early is crucial to finding the best solution. Once you know how much money is needed, you can help them find the funding that fits. One thing is clear: the role of the accountant is changing. By keeping up-to-date with current developments and adapting to the changing landscape, their practice is sure to become more flexible. Increasingly dynamic and knowledgeable practices are set to be the real winners. Ultimately, they will be in a better position than their competitors to attract and retain growing client numbers.

Juliette Peyraud, senior account manager, is responsible for managing Spotcap UK’s growing network of accountants. Juliette regularly travels across the UK to meet accountants and financial advisers who have shown an interest in alternative finance to be able to better advise their clients.

Spotcap has participated in an Accountancy Age webinar on Access to Finance, which took place on 19 October, alongside Grant Thornton, Oxford Innovation and Xero. Listen to the on-demand version here.

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