The Cashflow Problem That Isn’t a Borrowing Problem
You’re profitable. The order book’s strong. And you’re still scrambling to pay suppliers on Thursday afternoon because three customers haven’t paid invoices that came due last week.
It’s not a revenue problem. The work’s there. The margins hold. But somewhere between sending invoices and seeing money arrive, your working capital disappears into a gap that feels like it’s getting wider.
So you do what most businesses do. You patch it. Extend the overdraft. Take out a business loan. Maybe a merchant cash advance if things are tight. The solutions are quick, they’re marketed as flexible, and they solve Tuesday’s problem.
But they create next month’s.
The expensive fix
I’ve been looking at business finance for over twenty years – first from inside banks, now as a broker. And the pattern I see most often isn’t businesses failing to make money. It’s businesses spending too much to access their own money.
The overdraft that was supposed to be temporary becomes permanent. Then expensive. Then maxed out. So you add a loan. That works for a while – until it doesn’t, and you need another one to keep everything moving.
Three years later, you’re running three facilities, paying interest on all of them, and wondering why a profitable business feels harder to manage than it should.
Insolvency practitioners are seeing this too. In conversations I’ve had with several IPs recently, they’re watching directors take on what they’re told are “unsecured” business loans – fast approval, no business assets required, simple paperwork. Sounds safer than secured borrowing.
Well, not quite. Safer for who?
“Unsecured” means the lender hasn’t taken a charge over a specific business asset. It doesn’t mean nobody’s on the hook. Almost every one carries a personal guarantee. If the business struggles, the director’s personally liable – and that liability doesn’t end when the company does. The guarantee survives insolvency.
The IPs I’ve spoken to are calling it the next PCP scandal. Directors signing guarantees they don’t understand, on loans marketed as low-risk, finding out years later that their home was on the line the whole time.
That’s the expensive way to solve a cashflow problem. And it’s common, because most businesses don’t realise they have a cheaper one already sitting in front of them.
The asset you’re not using
If you’re selling to other businesses on credit terms, you’ve got a debtor book. Invoices you’ve raised, work you’ve done, money you’re owed.
That’s an asset. Not in the accounting sense – in the practical sense. It’s value you’ve created that you can access before your customers pay.
Most businesses don’t think of it that way. They think: we’ve done the work, now we wait. If cash is tight, we borrow to cover the gap until payment arrives.
But if you’re borrowing to cover the time between invoicing and payment, you’re paying interest to access your own earnings. And if you’re doing that every month – paying to wait for money you’re already owed – it adds up fast.
The alternative is using the debtor book as the funding source. Instead of borrowing against the business generally, you’re drawing against specific invoices. The cost is usually lower, because the risk is lower – the lender knows exactly what they’re funding and when it’s due to be repaid. No personal guarantees over your house. No unlimited liability if things go wrong.
I’m not saying it’s right for every business. Some don’t have the invoice volume to make it work. Some have customers who pay quickly enough that the timing gap doesn’t hurt. But for businesses where cashflow pressure is constant, where the debtor book is strong, and where the current solution involves expensive unsecured borrowing with personal guarantees attached – it’s worth looking at what you’re sitting on before you borrow more.
What changes when you know what you have
The businesses I work with who’ve moved from general borrowing to invoice-based funding usually say the same thing: it feels like less pressure. Not because the cost disappeared – funding has a cost – but because the cost is proportional to what they’re using, and the liability is clear.
They’re not layering loans on top of overdrafts on top of merchant advances, all charging different rates, all requiring separate management. They’re accessing cash against the value they’ve created, as they create it. When invoices are high, funding is available. When they’re low, they’re not paying for capacity they don’t need.
It doesn’t solve every cashflow problem. If the issue is profitability, no amount of funding helps – you’re just borrowing to lose money more slowly. But if the issue is timing – strong sales, solid margins, payment terms that don’t match supplier terms – then the problem isn’t that you need more borrowing. It’s that you haven’t looked at what you already have.
The question worth asking
If you’re running a profitable business, and cashflow still feels tight, it’s worth asking: am I borrowing to solve a timing problem I could solve another way?
If you’ve got a debtor book, you’ve got an asset. If you’re taking on expensive facilities with personal guarantees to cover the gap while you wait for customers to pay, you might be solving the problem the hard way.
I’ve spent most of my career helping businesses work out what funding structure makes sense for them – not what’s fastest to arrange, but what fits their situation. Sometimes that’s borrowing. Sometimes it’s using what they’ve already got.
If you’d like a second look at what options you have – no charge, no obligation, just a conversation about your specific situation – get in touch. Sometimes the solution isn’t raising more money. It’s using what you’ve already earned. Call 01937 229222 or email hello@shadowfaxfunding.com