Why is my business profitable but short of cash?

Yes. A company is unable to pay its debts if it cannot pay them as they fall due, whatever its profit, and a creditor owed more than £750 can serve a statutory demand and petition to wind it up if the demand is unpaid for three weeks. A growing business with long customer terms can show a profit in its accounts and still miss a wage run or a tax payment.

Profit is sales less costs, counted when they are invoiced or incurred. Cash flow is money in and out of the bank, counted when it moves. They differ by the timing of customer payments, supplier payments and tax, by stock bought before it is sold, and by spending that is not in the profit figure, such as loan capital repaid and equipment bought outright.

Shorten the time between paying for work and being paid for it: invoice on completion, chase on the due date, take deposits on larger jobs, hold less stock, and agree supplier terms that match your customer terms. Look at VAT cash accounting if your turnover qualifies. Fund the gap that remains with a facility that grows with sales, such as invoice finance.

It can. Under the scheme you pay VAT on sales when your customers pay you, and reclaim VAT on purchases when you pay your suppliers. A business with long customer terms stops paying VAT on invoices it has not been paid for. A business that pays suppliers late and is paid on time gains less. It is open to businesses with VAT taxable turnover of £1.35 million or less.

If the growth is profitable and the gap is a timing gap, borrowing against the invoices or a facility you draw as needed matches the cost to the need. Work out the cash cycle first, then the cost of the funding in pounds against the profit the extra sales bring in.

Invoice finance advances you most of the value of your unpaid business invoices and collects the balance, less its charges, when your customers pay. It comes in three forms: factoring, where the funder runs your credit control; invoice discounting, where you do; and selective finance for single invoices. The facility grows with your sales, because each new invoice adds to what you can draw. The full answer.

Working capital finance pays for the gap between paying for stock, wages and suppliers and being paid by your customers. The right product depends on where the cash is stuck: in unpaid invoices, in stock, in a tax bill or in a seasonal dip. Each one is repaid from trading cash coming in, so it suits a timing gap in a business that trades at a profit. The full answer.

A revolving credit facility is a borrowing limit agreed for a fixed term, which you can draw, repay and draw again as often as the agreement allows. You pay interest on the amount drawn and a smaller fee on the part you leave undrawn. Unlike an overdraft, the lender commits the limit for the term, so it cannot be withdrawn at will while you keep to the terms. The full answer.

A VAT loan pays your VAT bill to HMRC on the due date, and you repay the lender in monthly instalments over a few months. It avoids HMRC’s late payment penalties and interest, at the cost of the lender’s interest and fees. HMRC may also agree a Time to Pay arrangement, which charges interest but no loan fees. The full answer.