Ginni Cooper, head of the manufacturing and engineering team at Moore and Smalley, one of our Boost & Co members, offers some top tips to help your growing business avoid running out of cash. Issues around overtrading happen when your current assets or working capital are insufficient to bridge the gap between funding new work and getting paid for invoices you have already issued.
Overtrading is particularly common among growing manufacturing businesses that have capital intensive manufacturing methods and the need to invest heavily in raw materials. It also affects fast-growing businesses that are chasing new work but haven’t developed a financial management system that is synchronised with the payment cycle. Here are six useful tips for avoiding overtrading:
Invoice discounting is an effective antidote to overtrading. It involves borrowing cash against your invoices, while staying in control of debt recovery. Factoring is a similar funding stream, but involves the fund provider recovering your customers’ debts.
If you think your business is in danger of overtrading, speak to your professional advisers as soon as possible. Signs that this could be happening include slipping of your payment terms, having to pay your suppliers late as a result and a constant need to access your business’ overdraft facility.