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The old adage that “cash in king” has never sounded truer than it does in the current economic climate. Without healthy cash flow, businesses can no hope to survive for the foreseeable future. When considered the current credit challenged times, cash flow management and forecasting takes on ever a greater significance. The lack of credit available for businesses from traditional sources has led to an increase in enquiries into alternative funding options such as asset-based lending (ABL). 

According to a research carried out in the UK, it has been revealed that the number of business clients being refused finance by traditional lenders has virtually recently tripled. In addition, about 60 percent reported that there was an increase in business owners proactively seeking to learn more about alternative methods of funding. Thday’s financial managers must understand the cash dynamics of their business, the key to successful financial management at present is to use this understanding to anticipate these issues and then communicate with funding institutions and stakeholders early and honestly. This is in line with a very important corporate governance principle “transparency”.  

Businesses looking to improve vital cash flow, both short and long term, can consider receivable finance, which enables funding to be leveraged against unpaid invoices without waiting for customer payments thereby delivering an immediate boost to cash flows. Revolving receivables and inventory finance can be combined with fixed assets and collaterised cash flow term loans to provide even more liquidity and this can be the lifeblood to many companies in this credit crunch ridden turbulent time. 

ABL unlocks the hidden value of a business’s assets by raising funding from various assets a business owns such as debtors ledger, inventory and PPE. This can then be used to ensure working capital enable stability, growth or even turnaround plans to be realized offering stressed businesses an extra headroom required to execute their well-laid restructuring plans. For companies willing to re-engineer, re-structure and create a viable business plan going foreard, this facility can make all the difference. But only if the lender is brought in at the right time to work in partnership with the management team. 

Financial modeling is vital and tight cash flow management is often the difference between the success and failure. The ability to successfully predict the true cash dynamics of a business comes from a clear financial overview. Using this overview to conservatively (set aside your aggressiveness for the time being) model to predict the cash flow in the current climate is essential. If the financial information is accurate, clear and up to date, any business’ financial performance can be modelled to understand how bank heads and covenants are affected by changes in the main business variables (sales, margins, capital expenditure, debtors’ payments rates). 

Clearly working in close partnerships with a lender has never been as important as it is now. During these fast moving times, cash flow can change for better or worse almost overnight. Once the management team can anticipate likely financial and cash flow issues, they must be communicated in a timely fashion to funding providers and other stakeholders. If possible, always avoid giving this important group of people surprises.
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