Managing cash flow in a high-interest environment

As we enter 2024, the economic environment remains challenging. Higher interest rates mean that the cost of borrowing is significant, and the 'cost of carry' for late-paying customers is higher than it has been for a decade.

Effective cash flow management—including rigorous credit control, optimising inventory levels, and reviewing financing arrangements—is essential for maintaining liquidity and supporting business stability.

Tightening credit control

When borrowing costs are high, you cannot afford to act as a free bank for your customers. Review your payment terms and ensure invoices are issued promptly. Implement a strict, automated credit control process to chase late payments. Consider offering early payment discounts to encourage faster settlements, or using invoice financing to unlock cash tied up in your sales ledger.

Optimising inventory and stock

Holding excess stock ties up valuable working capital. Conduct a thorough review of your inventory management. Identify slow-moving items and consider discounting them to convert them back into cash. Move towards 'just-in-time' ordering where possible, and negotiate better terms with your suppliers, such as extended payment periods or volume discounts.

Reviewing financing options

If your business relies on variable-rate debt, the impact of higher interest rates will be immediate. Review all existing loans, overdrafts, and credit cards. Can you consolidate expensive debt into a lower-rate term loan? Is asset finance a more cost-effective way to fund new equipment? Regularly discussing your cash flow forecasts with your accountant and your bank ensures you have the right funding structure in place before a cash squeeze occurs.