Why is cash flow so important for any business?

You have probably heard the phrase ‘cash flow is king’. This means that a company needs to have cash flow to be able to buy goods in order to perform its activities to sell the goods, and pay its suppliers and employees etc.

If a company doesn’t have enough cash flow and is not able to pay its debts as and when they fall due, it can become vulnerable to legal actions from its suppliers such that the business can be jeopardised and ultimately ‘wound up’. Similarly if it cannot afford to buy as many goods as needed to operate optimally, this is an indication of cash flow difficulties.

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Profitable business can suffer from poor cash flow which can be more fatal to the prospects of the company than poor profitability. It is key that a business has enough cash flow in order to not make it vulnerable to any creditor action.

A company can be wound up by a supplier by a court order if it doesn’t pay any amount of £750 or more once the supplier has gone through the court process to get paid. Usually a supplier would try to get a county court judgement (CCJ) and enforce the CCJ through a bailiff. If the bailiff cannot get payment, then the creditor can go back to court and apply for a winding up petition to get the company wound up.

Another route to do this would be through a solicitor. A solicitor would send a 7 day letter for the debt to be paid in full once the credit terms have been exceeded. If the company is unable to pay on that 7 day notice and doesn’t have any valid dispute against the debts, the creditor could issue a winding up petition against the company.

For more information, please contact 0113 242 0808 or email advice@chamberlain-co.co.uk