Cash Flow Improvements

Topic: Cash Flow Improvements

Issue

A company had experienced cash flow issues as a result of investing in future products and experiencing difficult trading conditions.

Resolution

One of the major reasons for the trading difficulties arose as a result of Far East customers reviewing their own purchasing requirements whilst at the same time driving the process down.

A member of FinanceHeads reviewed the existing cash flow and advised on a number of quick fixes.

• VAT returns had previously been prepared quarterly however as the company was a major exporter there was always a repayment situation. Immediately monthly returns were commenced which had a significant impact on the short term cash flows.

• The Managing Director drew a commercially relevant salary from the company despite having an extremely large loan account due to him. By drawing down a similar amount to his net salary there were significant savings on PAYE and NI liabilities for a two year period.

• Investment in Research & Development had arisen without any consideration for making an appropriate claim to reduce Corporation Tax. By assessing the level of expenditure and carrying back to prior years a significant impact was made on the Corporation Tax liability which was due within months.

Impact

The immediate impacts of the cash flow changes enabled a better relationship in the supply chain which in itself further generated extended credit terms. Furthermore there were significant reductions in bank charges and interest and an improved credit score to enable sales growth in the export market.