Cash flow is the lifeblood of any successful business. Cash flow is what allows a company to pay its staff, purchase stock, and ensure contractual overheads are paid on time. 

Once cash flow becomes squeezed, problems can quickly spiral, taking a once thriving company from a position of solvency to one which is struggling to meet its financial obligations surprisingly quickly.

Cash flow challenges can arise for a variety of reasons, and in many instances, they are not caused directly by the actions of the company facing these problems. Late – and even non-payment – of invoices is rife in the construction and landscaping industry, and unfortunately this practice is a major trigger for cash flow concerns. 

The prevalence of late payments is a major burden on many landscaping firms, and something which can have far reaching consequences beyond just the two companies involved. One instance of a client paying late can be the catalyst for knock-on problems up and down the supply chain, causing unnecessary stress, souring relationships, and in some cases grinding operations to a halt altogether. 

When added to the soaring cost of materials, continued supply chain issues, and a skills shortage, chasing late payments is a problem most landscaping companies could do without. In spite of this, it is vital that cash flow challenges are quickly identified and appropriately managed in order to shield the company from damage.

If your landscaping or construction company is suffering with the ill-effects of poor cash flow, here are some tips which could help:

• Review collection processes – There is no getting away from the fact that chasing unpaid invoices is a time-consuming and labour-intensive process and something which is unlikely to be high up on your list of priorities. However, it is in your interest to ensure your collection processes are as efficient and effective as they can be. Often those who shout the loudest get the best results; so remain professional, but be tenacious in chasing late payers. It is much easier to ignore an invoice from a company who is not actively chasing; it is much more difficult to ignore phone calls and frequent reminder letters landing on your doormat. Taking early action can mitigate the risk of the debt turning bad and ultimately having to be written off as uncollectable at a later date.
  

• Review payment terms – Set clear payment terms, and ensure suppliers and clients are aware of the deadline for payment right from the start. Consider discounts for invoices which are paid on time; while incentivising clients to stick to the agreed terms shouldn’t be necessary, sometimes this sweetener could see your invoice prioritised over others if the client is in a financially precarious position. Alternatively, you could charge interest on late payments, although you should ensure these are reasonable to the situation. If you have clients or customers who are notoriously late in settling their debt, you could consider offering them payment plans if you are confident they will be able to keep up with the agreed terms of any such agreement.

• Implement credit checks – Prevention is often better than the cure, and this is especially true when it comes to bad debt. When onboarding new clients, conducting a credit check can help you form a picture of their past payment history allowing you to assess the possible financial risk they pose before you offer them a line of credit. Credit checking is not just for new customers, however; regularly checking the credit worthiness and risk profile of existing clients can highlight any changes in their circumstances allowing you to act quickly to mitigate your position.

• Consider cash flow finance – A form of invoice finance could be the answer to dealing with late payers if this is having a negative effect on the company’s cash flow. Late payments within the industry are so rife that there are actually invoice finance products aimed specifically at the construction industry. Although the finance company will take a percentage of every invoice issued as their fee, utilised correctly, invoice finance can provide an element of much-needed certainty and stability to your cash flow situation which could be well worth the cost. Confidence in your cash flow position gives you the solid foundation you need to expand your operations, take on new work, and plan for the future safe in the knowledge that money will be coming into the business on a set date.

• Be alert for impending insolvency – Late payment of invoices is a major indicator of cash flow problem and could be a sign a client is facing deep-rooting financial problems, perhaps even potential insolvency. If you suspect a customer could be on the brink of insolvency, you should make it a priority to collect any outstanding monies owed and be cautious about offering a further line of credit as this may ultimately become unrecoverable if the company in question enters into formal insolvency proceedings further down the line.

While guaranteeing healthy cash flow is sometimes out of your control, being proactive and controlling the elements you can control can go a long way in shielding your company from the worst of the fallout. 

Author bio

Shaun Barton, partner at Real Business Rescue

Shaun Barton is a partner at Real Business Rescue and boasts a wealth of experience in helping directors of distressed companies understand their options. A director-facing adviser, Shaun is often the first point of contact for business owners in financial distress, consistently delivering expert insolvency and corporate restructuring advice when it is needed the most.