How to manage cash flow as a small business in the UK

Cash flow management starts with visibility. A 13-week rolling forecast — updated every Friday — gives you enough lead time to act before a shortfall becomes a crisis. Spreadsheets work fine; you do not need specialist software.

The forecast has three rows per week: expected cash in (customer payments, grants, loan drawdowns), expected cash out (rent, payroll, supplier invoices, tax), and closing balance. If any week shows a negative balance, you have roughly three to thirteen weeks to fix it — which is enough time if you start immediately.

Update the forecast every Friday with actual figures from that week. The act of comparing forecast against actuals is where most learning happens: you will quickly see which customers pay late, which supplier invoices arrive early, and whether your overall model is optimistic or pessimistic. After three months, your forecasting accuracy will improve dramatically.

Late payments kill more viable small businesses than bad products do. The two most effective interventions are: invoice immediately after delivery (not at month end), and follow up with a phone call the day payment falls due, before it becomes overdue.

Most late payment is inertia, not bad faith. A brief, professional call — "I'm just calling to check our invoice 2025-047 for £1,400 reached you and is approved for payment on Friday" — resolves most delays within 24 hours. It also signals that you track your receivables, which deters habitual late payers from treating you as a soft option.

Under the Late Payment of Commercial Debts (Interest) Act 1998, you can charge statutory interest at 8% above base rate on overdue B2B invoices and a fixed compensation fee (£40–£100 depending on debt size). Most businesses prefer not to invoke this in ongoing relationships, but knowing it exists strengthens your negotiating position. For persistent non-payers, a letter before action (LBA) costs nothing to write and recovers a significant proportion of overdue debts without litigation.

Cash flow is the gap between when you pay out and when you receive. Extending supplier payment terms — even from 14 to 30 days — can transform a perennial cash shortage into a comfortable position without changing a single sale.

Contact your key suppliers and ask for 30-day payment terms if you currently pay on receipt or net-14. Many suppliers will agree, particularly if you have a good payment history. Frame it as a long-term relationship benefit: "We'd like to grow our order volume with you. Could we move to 30-day terms to help with our planning?" This works more often than business owners expect.

Conversely, charge your customers on shorter terms than you pay your suppliers. If you pay suppliers net-30 but invoice customers net-14, you create a positive float that funds your working capital. The reverse — paying suppliers faster than you collect — is the root cause of most small business cash crises.

A pre-approved overdraft or revolving credit facility should be arranged before you need it, not after. Banks are far more willing to approve credit for businesses that are currently solvent and growing than for those in distress.

A £10,000–£25,000 revolving credit facility costs nothing when unused and can bridge a one-off gap caused by a large customer paying three weeks late. The cost of not having this facility — missing a payroll, bouncing a supplier payment, or declining a large order because you lack the working capital to fulfil it — is almost always greater than the arrangement fee.

Review your facility annually. If your revenue has grown, your approved limit may need to grow with it. Discuss this proactively at your bank relationship review rather than calling in a crisis.