How to protect cash flow and bolster working capital

Do you feel like you live and die by the sword of cash flow? Money comes in, money goes out, but if the two numbers don’t match it can cause huge problems. Even a small dip in cash flow can create immense pressure and stress for business owners, who are left scrambling to find the remaining balance. 

In January 2025, 16% of businesses said their turnover went up when compared to December 2024, while 28% reported a decrease. If you’re one of the businesses facing a decrease in turnover and some potential financial uncertainty, or if you’re enjoying some stable growth but would like to ensure that stability continues, read on. 

What factors can have an impact on cash flow? 

Understanding how to protect cash flow starts with getting to grips with what impacts working capital (the money you use to run your business) in the first place. There are many things that can impact a business's cash flow, here are just a few. 

Seasonal demands

Variations in seasonal demands can impact cash flow. Think of it like this: let’s say every single month you make £2,000 in sales, which costs you a steady £1,000 in inventory. Next month is Black Friday, and you’re projected to make £4,000, but you would have to pay £2,000 upfront before making any Black Friday sales. This is a great opportunity to grow, but that £2,000 is your entire month’s revenue, and you may need some of that cash to pay for staff and rent. In this way, seasonal demands can impact cash flow. 

Surprise costs 

Broken equipment, forgotten tax bills, and supplier cost increases can all have an impact on cash flow – particularly if they haven’t been budgeted for. In the first few years of running a business, you may find yourself hit by surprise costs in particular as there may be expenses you are unaware of. For example, once you make your first £90,000 in a given year, you need to start charging VAT, another example could be employers' National Insurance payments once you onboard your first staff member. 

Late payments 

27% of Britain’s small businesses are impacted by late payments, which can have a big effect on working capital, and they’re on the rise, with more than half of Britain’s business owners saying late payments increased in frequency in 2023.

Overstocked inventory 

A healthy amount of inventory is pivotal for business success, after all, you don’t want a customer turning up to make a high ticket purchase and leaving empty handed. However, too much inventory puts a strain on cash flow as you may have spent more than you might be getting in the short term. 

Slow sales cycles

A long sales cycle ties cash up, as you pitch to prospects, produce presentations and fund either your own labour or the work of a sales team, while waiting months to sometimes a year for revenue to come in. 

Market dips

The global and local markets can go both up and down, which can have an impact on immediate working capital. Not just that, but industry specific dips can have an impact on your business, along with dips in industries that your clients work in. For example, let’s say you’re a technology company servicing the events industry. Tech trends may impact you, but so can shifts in the events industry, as your clients may be more or less inclined to purchase as their revenue goes up or down. 

Tips for protecting cash flow 

There are a few key ways in which you can better protect your cash flow, including the below.  

Shorten invoice term dates 

If you’re currently offering over 30 days in invoice payment due dates, you might like to consider shortening this period to due on receipt, or due in 7 or 14 days. This isn’t always possible for businesses, and whether or not you can implement shorter invoice due dates can depend heavily on your current clients, industry traditions, and the services and products you offer. Consider what the impact of this shortened period might be – for instance, would this upset your current clients or would they be supportive of your attempt to better manage cash flow? 

Create an emergency fund

Spontaneous costs and late payments can have a big impact on cash flow – each of which could be resolved with an emergency fund. An emergency fund is a saved pot of money that can be drawn on in times of need. This can help prevent operational disruptions and is also generally good practice when it comes to money management. 

Hope and strategise for the best, but plan for the worst 

Growth is exciting, and it’s absolutely essential to hope for the best and strategise for a brighter tomorrow. But, do consider putting aside some time to think about what you might do if a piece of machinery breaks down or a client stops paying. Write some guidelines and a just-in-case action plan down, then, if anything were to happen, you know you’ve got a plan ready to go.  

What types of loans can be used to stabilise working capital? 

In theory, any loan can be used to help manage working capital, it just depends how it's used. However, there are some types of loans that are particularly suited to cash flow management. 

Invoice finance 

If you’re a B2B business, you may be used to clients paying 30 to 90 days after you raise an invoice, which in and of itself can come after delivering the services or goods. This can create tremendous strain on cash flow. Invoice finance is one possible solution to this problem. Invoice finance comes in two core forms – invoice discounting, which is when you borrow against unpaid invoices, and invoice factoring, which is when you sell your invoices to a factoring company. 

Working capital loan 

A working capital loan is designed to support you through these dips in cash flow, facilitating you with the cash you need today to help you manage operations and jump on surprise growth opportunities. 

Merchant cash advance 

A merchant cash advance is an advance on future sales. Since this form of funding doesn’t require recurring monthly payments, but instead takes a percentage of revenue from card transactions, it can be a helpful way to manage and protect cash flow. 

Short term business loan 

A short term business loan is a lump sum payment delivered to you in exchange for quite quick repayment terms, sometimes as brief as within a few months. These can be used to bridge short term funding gaps and smooth out cash flow, without forcing you to enter into a long term agreement, which can become its own strain on cash flow. 

Find a working capital loan with Funding Options by Tide

Are you looking for cash flow support? We’re experts at helping eligible borrowers find the most cost effective, most efficient working capital loans and business finance solutions on the market. That’s because we work closely with our active network of over 120 of the most reputable lenders in Britain offering up to £20 million. To find out if you’re eligible for a loan starting at £1,000, just click the link below and submit your information and we’ll get in touch shortly. 

Find a loan to support working capital.

Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.