How a cash buffer protects your business

2 min read

The reserveCash held for shocks

Months of costsSized to your risk

Peace of mindCrisis becomes inconvenience

Number of lean months per year

Average monthly shortfall in lean months (£)

Unavoidable monthly fixed costs (£)

Sizes the working-capital buffer a seasonal business needs to cover its lean period.

What a buffer does

A cash buffer is simply a reserve of cash you keep untouched for emergencies — a big customer paying late, a machine breaking down, a sudden dip in sales. With a buffer, these events are inconveniences you absorb calmly. Without one, any of them can tip a healthy business into crisis, forcing rushed decisions and expensive last-minute borrowing. The buffer buys you time and options, which are worth more than the interest the cash could earn sitting elsewhere.

How big it should be

A common rule of thumb is three to six months of fixed operating costs, but the right size depends on your risk. A business with steady, diversified income and fast-paying customers needs less; one with lumpy revenue, a few big customers, or long debtor days needs more. Seasonal businesses should size the buffer to survive the trough. Model it against your worst realistic month, not your average. See building a cash buffer.

How to build one

Build a buffer the way you would any saving: deliberately and automatically. Set a target, then move a fixed sum into a separate reserve account every month or every strong week, before the money can be spent. Ring-fencing it in a separate account is the key discipline — cash that stays in the main account gets absorbed. A buffer built slowly and left alone becomes real protection surprisingly fast. See how to build a cash buffer.

Buffer vs facility

A buffer and a standby facility do similar jobs from different directions: one is your own cash held ready, the other is borrowing arranged ready. The strongest position holds a buffer for the everyday and keeps a facility in reserve for the larger, rarer shock. Together they mean you almost never have to raise money in a hurry — which is always when it costs the most.

Backing the buffer with headroom

While you build the buffer, an arranged facility gives you protection from day one.

Credicorp lends to your company, not to you personally, and takes no personal guarantee. See indicative terms on business loans, or apply online in minutes.

Size your buffer with the cash buffer calculator.

Frequently asked questions

How big should my cash buffer be?

A common guide is three to six months of fixed operating costs, but size it to your risk — lumpy revenue, big customers or slow payers all argue for more. Model it against your worst realistic month, not the average.

How do I build a cash buffer?

Set a target and move a fixed sum into a separate reserve account every month or strong week, before it can be spent. Ring-fencing it away from the main account is the discipline that makes it work.

Do I still need a buffer if I have a facility?

They complement each other. A buffer handles the everyday; a standby facility covers the larger, rarer shock. Holding both means you rarely have to raise money in a hurry, which is when it costs most.