Negative Cash Flow

From the Desk of the Bookkeeper Derby

Definition: Negative Cash Flow

Very simply - your outgoings exceed your incomings.

This situation can and does happen for a variety of reasons, and for many will only be a temporary loss in the grand scheme of things.

However, if this situation continues it may be indicative of employee fraud, ineffective credit controls, or losses in real terms.

According to a report by  Freshbusinessthinking.com:

Big Corporates worst offenders in £24 billion late payment debt 24/05/2011

Large corporates are responsible for many of the late payments making up the massive £24 billion owed to British small and medium sized enterprises (SMEs), according to research from Bacs, the organisation behind Direct Debit and Bacs Direct Credit.

But, in contrast with the commercial sector, the public and third sectors are meeting more of their bills on time — SMEs experiencing late payment on invoices to government and not-for-profit organisations almost halved from 11% to 6% in the last six months of 2010.

Bacs newest late payments research shows a third of SMEs reporting that big businesses are behind late bill settlement. And those operating in the manufacturing industry are most likely to suffer delay at the hands of the big corporates, where 41% of the sector's SMEs experiencing late payment said large companies were to blame for overdue invoices.

Negative Cash Flow is not something to be taken lightly.  In the interests of running a successful enterprise, which make no mistake, is measured by how much profit is made at year-end, it is imperative for the SME to put in place relevant systems and checks to identify where the drain on their profits is occurring; whether from staff theft, ineffective management, or simply not being paid on time.



Question then becomes:  what systems/checks do I need?



BKD

Thought for Today: 

The more difficulties one has to encounter, within and without, the more significant and the higher in inspiration his life will be.  Horace Bushnell