1. CASH MANAGEMENT
10 sources of cash that every business should consider
Cash is the lifeblood of every business, without which a business will surely fail. Solid
financial planning will identify the working capital requirements, which can be supported by
investors. However, good working practices can keep the cash flowing, either to cover
short-term liquidity difficulties or to reduce the longer-term need for equity financing.
This paper provides some practical tips for business owners and managers to ease cash-
flow difficulties by identifying 10 sources of short-term and longer-term cash, other than
secondary equity finance.
CASH-FLOW BASICS
A business that is very well capitalised will be able to meet its debts when they are due, and it is the directors’
responsibility to ensure the business can do so. It is therefore very important to identify the sources of cash in-flow
and cash out-flow, and to model the impact on the cash position over time.
Effective cash management requires that these competing sources are identified and the processes effecting timing
are understood and controlled. The cash position of the company can be maximised by ensuring that cash is
collected promptly and paid out only when necessary.
CASH-FLOW - CATEGORIES
EQUITY
Businesses can raise cash from investors in exchange for shares in the business. Other than touching on the start-up
funds, this paper does not cover equity finance, which is a large topic in its own right.
CASH IN-FLOWS
Cash comes into a business for a variety of reasons. These can be categorised according to the nature of the
processes and systems involved. Routine cash-inflows, such as receiving payment from customers can be managed
by these systems (systemic). Other cash-inflows may occur from time-to-time as needed, such as changing business
practices in order to raise cash (ad-hoc).
CASH OUT-FLOWS
These can also be divided between routine systems (systemic), which are generally concerned with supplier
payments controlled by payment systems and contractual agreement, and changes to agreements to reduce out-lay
at specific time (ad-hoc).

2. 10 SOURCES OF CASH
INITIAL EQUITY / DIRECTORS’ LOANS
1. START-UP FUNDS
Initial investments – directors’ equity and loans
The founding members of a new venture will often be willing to invest some of their personal wealth, either in
return for equity or as a director loan. If the directors have a great business plan, the initial capital will have a
specific purpose and future funding requirements will already be understood. Unfortunately this is not always the
case. This initial funding is misused and the cash runs out before a reliable income stream has been generated. At
this point the founders may find they have to invest more of their own cash into the business, and may sell assets or
change lifestyle to achieve this.
Even more “initial” funding – friends and relatives and unsecured loans
Good planning would certainly avoid funding surprises – but there may well be friends or family who are willing to
support a new venture, without the formalities, restrictions and penalties that other investors would impose and
may not require any equity in return for their unsecured loan. This can test relationships, but may well be the
catalyst to develop the first meaningful cash-flow plan.
CASH INFLOWS - SYSTEMIC
2. COLLECT PAYMENT DIRECTLY FROM CUSTOMERS WHEN DUE
Negotiate terms
Payment terms should be an integral part of any contract negotiation and so should be discussed at the same time
as price. It is important to avoid extending payment terms to win a contract without proper commercial
consideration. The consequences or penalties for late payment should also be negotiated and discussed. A late
payment interest charge may be of little real value compared with being paid on time.
Select customers carefully
Not all customers are equal. Irrespective of the potential profit in a sale, late payment or non-payment can have far-
reaching consequences. The customer’s ability to pay and their usual terms and trade history are important
considerations, and should not be skipped over.
Understand reasons for non-payment
The reasons for customers resisting payment fall into three broad categories. Understanding which category your
outstanding debtors fall into will allow the most appropriate action to be taken:
 The customer does not accept the validity of your invoice
This could be for clerical reasons such as wrong amount, reference or contact name. A bigger issue is when the
product or service has not been delivered or completed as agreed. It is clearly important to have processes to
ensure that invoices are sent out legitimately, and that proof of completion or delivery is obtained as necessary.
 The customer does not have the money
In this situation, your customer may not let you know, or may be prioritising other suppliers. Their short-term
difficulty may pass, or may get worse whilst others are being paid. Your processes must help you to understand
the true reasons for non-payment and to take appropriate action. This may range from showing understanding
and extending credit, agreeing a structure for payment, or withholding services. A pragmatic approach may be
required to maximise long-term business value whilst protecting your short term position.
 The customer simply will not pay
This may arise when the customer just doesn’t want to part with its cash, either because it is trying to be
shrewd, or is actually being dishonest. If you have delivered products and services as agreed then it is
reasonable for you to be paid. Adopt good cash collection procedures and demand honesty from your
customers. Take early action and don’t be shy of being firm. There is little merit in having customers that won’t
pay their bills.

3. CASH COLLECTION CHECK LIST
 Clearly state Terms and Conditions of sale
Your terms and conditions should state very clearly the payment terms that you wish to agree with your
customers. This is a fundamental requirement, as it will be very difficult both legally and in practice to impose
terms at a later stage (i.e. at the time of invoice). It is somewhat hopeful to expect that by simply including
payment terms in the small print will have any significant impact on cash-collection.
Your payment terms should be made abundantly clear to your customers prior to entering into a contract. They
need to be reasonable and, more importantly, your customer must be able to comply. If it is likely that a potential
customer will not wish to comply (or cannot comply) with your suggested terms, then make it a point of
negotiation, rather than a point of contention at a later stage!
 Send invoices out promptly
As soon as you are allowed under the terms of your agreement, you should send out invoices. This gives your
customers a reasonable opportunity to process the invoice as required. It may well require that you adopt good
systems for internal communications between delivery / service department and finance. For smaller businesses
this may simply require good time management and record keeping discipline.
It may be necessary to demonstrate evidence that the invoice is due, this may be a signed delivery note, or a
signed acceptance test – if this is the case it is good practice to check these are available prior to sending the
invoice.
 Re-state the agreed terms on the invoice and send statements
This is not the time to introduce payment terms or penalties, but in most cases it will be useful to re-state the
agreed terms. Send out statements for outstanding invoices, showing when they are due or how overdue they
have become.
 Understand your customers’ processes
Processes involve people, and people hide behind company processes. It is worth investing time in
understanding the actual processes that your customers have in place for dealing with invoices. All too often an
invoice isn’t paid on-time as it “has not been approved”. Know the approval process and ensure the correct
approvals are given – before the payment is due!
 Support your customers with information
If you only chase payment once it is late then you will be encouraging late payment. You should adopt good
processes to help your customers to understand when their payments are due. For most businesses this will be
simple, but will require structure and discipline. The process may include:
 Check your customer has received the invoice, shortly after it is sent, and re-confirm the payment terms.
 Confirm that it has been approved – be prepared to provide evidence that it is valid. Ask for confirmation
of the payment date.
 Prior to the agreed payment date, make a courtesy call to check that everything is in order and that
payment has indeed been scheduled.
 Always use the date the payment will be cleared in your bank account to avoid cash-flow surprises.
 Develop a good process to manage late payments
The difficulty that many businesses face is late payment by valued customers. You want to continue the
relationship, without interrupting service, as the financial benefit seems to be important, yet you need to collect
payment and seem powerless to do so. For businesses of all size, this is a frequent dilemma, and each business
will need to adopt their own specific approach. It is important to have established a process prior to the event,
which should include timescales, value thresholds and escalation processes.

4. 3. RAISE CASH INDIRECTLY FROM CUSTOMERS
Many businesses enter into arrangements with finance companies in order to realise the value of the debtors at an
earlier stage. This can be known as invoice financing, factoring or invoice discounting. The finance company allows
you to draw down a percentage of the total debtors as soon as an invoice is produced. The percentage, cost and
overall terms will vary according to the nature of your business and customers. The responsibility for collecting
payment often remains with you, and your customers are generally unaware of the arrangement.
It may be possible to work with finance companies that you introduce to your customer. The finance company may
provide a variety of solutions such as lease financing to your customer and agree to pay you promptly. They will
take the commercial risk and be responsible for collecting payments, so your customer will need to be commercially
sound.
CASH INFLOWS – AD-HOC
There are various tools that may be available to release cash when it’s needed. These will provide cash today, but
will worsen cash flow in the future.
4. ASSET FINANCING
Business that have been in the habit of paying for assets at the time of purchase may be able to release cash by
entering into an asset financing arrangement. The finance company will take over the asset, pay a certain amount of
cash and then lease back the assets.
5. BANK LOANS, OVERDRAFTS AND CREDIT CARDS
Banks will and do provide loans to small and start-up businesses. Don’t expect to succeed in obtaining a loan without a
very good business plan backed by evidence that your plan will succeed and that there is little or no risk to the bank. In
certain situations you may be asked to provide a personal guarantee – these should not be given lightly nor without
proper accounting and legal advice; if your business fails you’ll lose your income and still have to make the agreed
repayment together with fees and interest.
Despite the possible difficulties in getting a bank loan there is no harm in having a conversation, but try to make an early
assessment as to whether you are likely to get the desired results without being tied up writing plans that you don’t
necessarily believe in.
There is nothing wrong with using overdrafts and credit cards to support short-term cash fluctuations. Balance the cost of
using the card against the value of being able to meet payments to guide your decision.
6. VAT RECLAIMS
Once a business is established, VAT returns will be done systematically, so any VAT due back will be collected in the
normal course of business. Start-up businesses may overlook the fact VAT can be reclaimed against many start-up costs,
so it is worth taking advice and submitting the first claim as it could be a much needed source of cash in the early stages of
the business.
CASH INFLOWS - SYSTEMIC
7. SUPPLIERS
One of the most powerful ways to reduce working capital requirements is to negotiate good payment terms with your
suppliers. Having a degree of flexibility built-in to formal terms can ease a lot of stress in managing the business. Adhere
to agreements where possible – don’t simply pay late for the sake of it, as this will certainly damage your relationship and
reduce the possibility of future flexibility when you really need it.

5. It may be possible to link your payment terms with that of your customers. Your key suppliers are likely to be more
understanding if they know who your customers are, and why you collect cash early. This is certainly the case with
supplying to large and inflexible but well-known listed businesses.
Key suppliers may also provide ad-hoc relief if you encounter short-term difficulties. It is good practise to discuss your
position ahead of time and seek a solution rather than unexpectedly withholding payments. For businesses in cash-flow
distress, conversations with key suppliers should be the first port of call.
8. CONTROL AD-HOC EXPENSES
Adopt good spending controls including staff expenses. Over time, businesses without tight controls can begin to leak cash
either through staff expenses or habitual spending by managers. Sensible controls over both of these could have a
significant impact on overhead costs, without impacting company culture or the ability for managers to do their jobs.
Whilst the expenses may seem ad-hoc, good systems will control and manage this possible cash outflow.
CASH OUTFLOWS – AD-HOC
The company’s cash position can be improved by deferring certain commitments when funds have dried up. There are
very many possibilities that fall into this category that may relate to the specific nature of the business.
9. STAFF
Generally, not paying staff is a bad idea and should not be seen as a way out of short term cash flow difficulties. However,
high paid executives and directors, or even staff who have secured unusually high bonuses or commissions, may be willing
to be flexible in the timing of pay.
10. HMRC
Payments to HMRC, typically arising from PAYE and VAT should be respected. Businesses may feel tempted to hold back
on payment as HMRC generally has no precise knowledge of what is owed and relies on the declaration of the business
itself. If it is not possible to make payments when they are due, then the best course of action is to speak directly to the
appropriate authority as early as possible. In certain circumstances it may be possible to enter into an arrangement with
HMRC to delay the payment of VAT and or PAYE, but you may need the assistance of someone suitable qualified, as a
degree of rigour and negotiation may be needed.
ABOUT ATRIUM
Atrium Consulting helps businesses develop winning business strategies. We help businesses grow by aligning sales
and marketing activities to the business strategy. Our services include:
 Business Strategy Development
 Business Process Outsourcing
 Sales and Marketing Strategy and Process Development
 Market Research
 Training and Skills Development
CONTACT ATRIUM
Rob Campbell, Managing Director
enquiries.campbell@atrium-consulting.co.uk
020 8334 8301
www.atrium-consulting.co.uk