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When the money runs out!

As the UK emerges from the worst recession post-war, its vulnerability to the funding gap has been seen to be particularly acute. Still, three or four years since we emerged Optimum SME Finance believe that as many as one in five SMEs could be overtrading.


Overtrading is when new business absorbs working capital faster than its customers pay their invoices. If the money runs out, an ostensibly successful company can be left unable to take on new work. At worst, the business could fail.

If a company suspects it is overtrading, it should take immediate action to maintain positive cash flow. This means speeding up the time it takes to collect payment from customers and arranging for an additional cash injection to cover the shortfall in working capital.


If a company can say yes to three or more of these ten signs, it could well be overtrading. These signs are not definitive proof of overtrading but provide a good starting point.

  1. Have your profit margins dropped over the past 12 months? YES/NO
  2. Has there been a large rise in the number of companies you are invoicing? YES/NO
  3. Does any one company represent more than 25% of your outstanding invoices? YES/NO
  4. Are your customers taking longer to pay than 12 months ago? YES/NO
  5. Are your struggling each month to meet your fixed overheads? YES/NO
  6. Would your bank turn down your request for a larger overdraft? YES/NO
  7. Have you increased your workforce to help meet new orders? YES/NO
  8. Is your turnover increasing while your profit stays the same (or falls)? YES/NO
  9. Have you purchased new plant or equipment recently? YES/NO
  10. Has there been a sharp rise in your variable costs (labour, material)? YES/NO


“Cash is king – profit is a matter of interpretation”

Categories: Information