Important Tips to Maintain Positive Cash Flow

Cash flow is the foundation of any business – whether small or large, and strength in this area is crucial for a business’ long-term survival. Research by fintech financier The Invoice Market – SME cash flow crisis report reveals that more than 40% of SMEs typically have more than 11 invoices outstanding, collectively worth an average of $38,000 each, while the The Australian Securities and Investment Commission cites poor cash flow as a factor in 40% of business failures.

The Invoice Market’s research not only reveals how much late payments are costing Australian companies, but also how much they are demanding of businesses’ time and resources. On average, 46% of companies have to ask twice or three times for their bills to be paid by errant corporate customers.

“Although four in five Australian businesses ask to be paid within one month, three-quarters of them have to wait up to two months, and an unlucky three per cent have to wait more than two months after the due date to be paid,” said The Invoice Market CEO Angus Sedgwick.

 

It’s not uncommon to see small businesses dip into their personal savings or credit facilities to see them through a poor cash flow period, so how do you avoid seeing your business become a statistic?

 

1. Have a budget.

Know your typical incomings and outgoings and plan for these. Be sure to also forecast expenses.

 

2. Have a back-up plan.

Invoices are not always paid on time (or, at all), so you need a back-up plan to get you through these potentially tough times. Put systems and processes in action to cover a cash flow shortage, be it a loan or a line of credit, well before you need it.

 

3. Bill immediately.

The sooner you invoice your clients, the sooner the amount will be due (and hopefully paid!). Ensure your invoices are delivered no more than 24 hours post-delivery of your goods or services.

 

4. Automate your systems and processes.

Take the hassle out of chasing invoices. Invest in software or a system that automates this, tracking your invoices and sending reminders before the due date.

 

5. Set payment terms that best suit your business.

And have these terms signed prior to commencing business. These remove any uncertainties, whilst also lays out your conditions clearly. It’s essential in these terms that you specify that any fees or charges invoked as a result of outstanding debts lie solely with your debtor.

 

Tip: just as you would have a lawyer draft a legal document for you, or an electrician fix a power outage, so too should you have a professional draft these terms of trade – like a debt collection company.

 

6. Arrange for payment upfront.

This takes the headache out of chasing invoices. If you can’t take full payment, then specify that a deposit is required – the larger percentage the deposit, the better.

 

7. Employ the professionals – a Debt Collection Agency.

A debt collection company can save you the time and the hassle of resourcing the collection of unpaid debts. They can also help you set up the systems and processes to minimise the likelihood of invoices becoming overdue.

 

Implementing the above will ensure your business has the very best chance at remaining cash flow positive and not becoming a statistic of Australian business failures. If you need to speak with a professional with regards to any outstanding debt you may have, please feel free to get in touch today!