Every small business encounters occasional challenges with managing its cash flow. However, with proper planning, these occasional hiccups can be prevented from escalating into full-blown crises.
So, how can you mitigate the disruptions caused by late customer payments or unexpected economic downturns in today’s ever-changing business environment?
Effective cash flow management is no longer just a good business practice; it’s a lifeline that can make or break a company. Cash flow, the simple concept of money flowing in and out of a business, remains a cornerstone of successful enterprises. The ability to maintain this financial equilibrium can be the determining factor between a company’s survival and its demise, emphasizing that proficient cash flow management techniques are not just advantageous but absolutely essential. Nevertheless, achieving an optimal level of cash flow efficiency, aligned with your financial goals and business aspirations, can present distinct challenges, especially for smaller companies.
In this edition of Let’s Talk, we have consulted with industry-leading experts to unveil practical strategies and innovative tools for mastering cash flow management.
Will Buckley, Country Manager, Australia at Xero
“We know cash flow is a challenge for small businesses right now, often leading to sleepless nights and, for over a quarter (27%) of business owners, dipping into personal savings to get through periods of tight cash flow (according to Xero’s recent Money Matters Report).
“To manage your cash flow efficiently, the use of technology is critical. Leveraging tools such as cloud accounting software enables you to access real-time insights into your cash flow and expenses, giving complete clarity of where money is flowing in and out. The implementation of a digital payment platform, such as Stripe, can also help businesses get paid up to twice as fast by making it easier for customers to pay invoices by providing them with more flexibility and ways to pay. You’ll also have better visibility over transactions, so you can spend less time monitoring or chasing payments.
“Working with your accountant or bookkeeper will also allow you to implement strategies to help predict potential cash flow challenges and work on a contingency plan to mitigate negative impacts in the future.”
Fabian Calle, Managing Director – SMB (A/NZ) at SAP Concur
“One of the constant challenges faced by businesses of all sizes is efficient cash flow management. As costs fluctuate, how can a business stay agile and financially sound?
“The answer lies in data. Far from just a buzzword, data serves as a vital roadmap for spending decisions. To optimise cash flow, businesses should consider three key strategies:
- Forecast flow and costs: automated financial processes give a real-time view of spending, revealing trends and highlighting cost-saving opportunities. The clearer the financial picture, the better decisions businesses can make.
- Consolidate spending data: from team lunches to big-ticket purchases, every cost matters. Centralise this information for a clearer, faster grasp on your company’s financial health.
- Maintain compliance: set clear spending policies and audit regularly. This way, business leaders can sidestep potential financial pitfalls, like hefty tax penalties or unplanned expenses.
“By embracing automated tools that track every dollar, businesses get the upper hand. It’s about making decisions grounded in complete information, ensuring agility and solid financial health.”
Jane Martini, Senior Credit Executive at Banjo Loans
“For many businesses, managing cash flow is a major and ongoing challenge.
“We’ve found that focussing on the cash conversion cycle (cashflow funding gap) — meaning the time lag between money flowing out of the business (expenses) and money coming back into a business (revenue) — is key to understanding how you can improve your cash flow efficiency. How many days does it take for you to convert your purchases into sales and more importantly, into cash?
“Signs of a cashflow funding gap include delayed payments, high operating costs and seasonal sales fluctuations.
“Firstly, start with analysing the inventory turnovers you are achieving each year, which is the time it takes for you to sell your inventory. The longer inventory sits there, the greater your cashflow funding gap will be and the longer your cash conversion cycle will be.
“Next, talk to your suppliers so you can explore establishing flexible relationships to improve your cashflow.
“Plan for off-peak sale periods, including setting aside reserves during peak seasons to cover expenses during slow periods, and smooth over the seasonal dips.
“Finally, identify where resources can be optimised and explore new markets or product lines that can help mitigate the impact of seasonal fluctuations.”
Steven Nicholson, Co-Founder and CEO of Retinue
“Cash flow is the lifeblood of any small business. These tips will help you keep the cash flowing:
- Set a budget and cash flow forecast for at least the upcoming 90 days. This will allow you to plan for large cash payments, such as key suppliers, wages, and BAS payments.
- Ensure control over your debtors. Keep payment terms as short as possible, ideally 7 days, and ensure this is clearly stated on your invoices. Send frequent reminders to customers and promptly chase overdue amounts.
- Offer multiple payment options on the invoice with click through payment methods such as credit card options.
- Use accounting software, such as Xero, which can automate much of the invoice reminders process and easily facilitates multiple payment options.
- Take full advantage of supplier payment terms. If an invoice has terms of 30 days, ensure you take advantage of this free credit.
- Set up additional bank accounts and put money aside to cover quarterly GST payments and your year-end tax bill.
“Reach out to your accounting partner today for help implementing these efficient cash flow management tips to set your business up for success.”
Scott Wiltshire, VP & GM ANZ, Oracle NetSuite
“Cash flow management is integral to business operations, and one of the most important financial processes to get right. For a business to function efficiently, it is crucial to understand how cash flows in and out of the business at any given time. With the right tools and processes in place, businesses can improve visibility, increase forecast accuracy, and strengthen decision making.
“Businesses should review how they approach and manage accounts receivables, accounts payable, and other cash management processes. Automating these will certainly help manage cash flow more efficiently, however leaders should also consider their contract payment terms with customers and suppliers.
“As a business grows, it becomes even more important to have access to real-time information to allow finance teams to maximise efficiency. A unified business management system helps to provide a holistic view of a business’ net position and provides actionable insights that can help the leadership team make the right business decisions.”
Mollie Eckersley, Operations Manager, ANZ at BrightHR
“Efficient cash flow management is a game-changer for all businesses, regardless of industry and business size. This is especially critical in the current landscape where businesses are fighting sky-high costs and looking to add more value for less.
“Achieving cash flow efficiency, however, needs a clear overview of your expenses, which isn’t possible if your business is relying on manual, paper-based management systems. That’s where digital tools like PoP, BrightHR’s easy-to-use business expense and mileage tracker app, proves its value.
“The app has saved our global client base more than $4K in tax savings. Just by centralising how your staff submit expense claims, making approving or denying claims a one-click process, and storing all your expense claims securely. This detailed record helps our clients maintain control over their accounts and get the highest possible returns come tax time. The app also includes a mileage tracker that does calculations for your staff.
“The secret is having easy-to-use tools that make cash flow visibility easy.”
Percy Hung, CEO and Co-Founder of Choco Up
“Effective cash flow management is vital for a business’ financial health. To ensure smooth operations and faster growth, consider these four key strategies:
- Precise Monitoring: Keep a close eye on income and expenses, using modern tools for accurate financial forecasts.
- Optimize Accounts: Encourage timely customer payments and negotiate more favourable terms with suppliers to align cash flows.
- Emergency Reserves: Build a financial cushion by setting aside profits for unexpected expenses.
- Extra tip: Explore financing options: Don’t limit funding to traditional methods. Investigate innovative options like revenue-based financing for flexibility.”
Tim Reddoch, Finance Director at Logicalis Australia
“A key to optimising cashflow management is identifying and tracking transactionally linked inflows and outflows. Having the ability to track cashflows by transaction is key. To achieve this, optimising your business systems setup is critical and involves ensuring the linking of unique identifiers for a transaction together for recording and reporting purposes.
“For example, if you have a large customer inflow expected, worth $1m, and requisite payment to the supplier for this transaction is valued at $900k, tracking both the inflow and outflow using unique identifiers in your ERP assists in the overall cashflow planning. In the event of the customer delaying payment to your company, this can be directly linked to the payment commitment required to be made to the supplier for the same transaction. In that event, prioritising the collection of the receipt from the customer becomes the key action.
“For this reason, careful planning of the structure of your ERP in terms of unique identifiers is imperative in order to isolate the key drivers of your cashflow from both an inflow and outflow perspective. This should be a key consideration in the setting up of your business systems and insights for success.”
Joshua McNicol, Director of Growth at Zeller
“Efficient cash flow management is essential for business success, and nothing risks this more than late payments. Finding the right payments, accounts, and cash flow technology to implement in your business can help you access your hard-earned money faster, and reduce the administrative burden of tracking and chasing late payments.
“This is why Zeller has introduced a range of solutions to streamline this process for business owners. With Zeller, you can assess business cash flow, track and monitor expenses, and generate reports from Zeller Dashboard or App. This enables you to monitor your business cash flow from anywhere and gives you real-time oversight to ensure you’re catching any shortfalls or financial obligations quickly — such as when invoices sent to your suppliers are due.
“By utilising technology that gives you a more accurate, real-time overview across all of your business cash inflows and outflows, you’ll be armed with the right data to make more informed decisions, maintain financial stability, and deliver smooth business operations.”
Matthew Sek, VP Growth, Australia and New Zealand at Airwallex
“Efficient cash flow management isn’t just about reducing costs or downsizing; it’s about strategically handling the inflow and outflow of money to promote growth and stability. Without effective cash flow management, a business would be flying blind.
“Smart strategies businesses can apply to manage their cash flow effectively include:
- Choosing alternative payment providers to reduce fees: Fintech platforms often offer a much more competitive rate than traditional banks for processing online payments or for foreign exchange – for example, with Airwallex it costs just 0.5% vs 4-5% with a bank for FX conversions. Any substantial saving on fees ultimately improves cash flow.
- Achieving near real-time transactions: Speed in processing transactions helps avoid operational issues from cash flow. Global start-up DigitSense was able to reduce the time it took to process global transactions from 2-3 days with a traditional bank to just 30 minutes with Airwallex, saving them time and helping them keep a better handle on their cash flow.
- Aligning payment terms between customers and suppliers: If both sides stick to the same schedule, cash flow remains consistent, reducing any gaps or vacuums. Delaying payments to suppliers until their invoice’s due date is also beneficial, as it maximises interest earned on funds within the business account.”
Dhanush Ganglani, Managing Director at Eden Exchange
“Efficient cash flow management is vital for every business’s financial health. That’s why we emphasise the use of a business management platform like MYOB to streamline operations. These platforms integrate essential workflows, improve efficiency and help to reduce stress. A business management platform offers features like finance and accounting tools, HR management, CRM, inventory management and more. They boost overall efficiency, combat digital disconnect and save time.
“Businesses can optimise their cash flow processes by leveraging a business management platform. For buyers and sellers, these platforms provide benefits like precise financial tracking, simplified due diligence, easy business valuation, automated workflows, performance monitoring and streamlined legal compliance.
“At Eden Exchange, we’ve partnered with MYOB to provide our clients with easy access to this platform, ensuring a smoother transition into business ownership and facilitating efficient financial management. It simplifies workflows, enhances documentation organisation and fosters seamless communication, making the buying and selling process less stressful and more successful.”
Sean Wiles, Working Capital Partner at McGrathNicol Advisory
“The simple answer is discipline. A disciplined approach to working capital management involves a clear aim of maximising cash flow and making the cycle as short as it can be, with the least amount of steps “left to chance”.
“For example, debtor management must start from the moment work begins; not when unpaid invoices fall overdue. Agreed and documented procedural steps, increased contact with the customer before the invoice due date, and an understanding of customers’ payment cycles to ensure bills are sent at the right time are helpful measures. On the supplier side, paying late or stretching creditors is not sustainable but often, the only incentive to pay early is an attractive discount rate. By clearly setting out the steps in the procurement-to-pay cycle and assigning responsibilities, SMEs can ensure suppliers are paid on time (without needing to pay early). Rolling 13-week cash flow forecasts in receipts and payments format will also help SMEs identify any cash flow constraints or funding gaps in the working capital cycle.”
Angus Sedgwick, CEO of OptiPay
“Every business should have a cash flow forecast in place that identifies potential shortfalls or busy periods. Knowing when your cash inflow and outflow are the highest can help you set aside a cash buffer in advance.
“Late payments hurt small businesses with some waiting up to three months to receive cash. All the cloud based accounting platforms provide follow up reminders that can be scheduled at various points in the invoice payment cycle. If needed, pick up the phone and call your debtor – the squeaky wheel gets paid first! Regularly review your outgoings to see where you may be overspending.
“Consider getting help to keep your cash flow on track. Look carefully at what type of funding solution is going to best suit your business needs. Invoice financing, which allows you to be paid up to 90% of your outstanding invoice value upfront can see funds accessible within 24 hours. When your customer pays and the funds are received by your debtor finance provider, they’ll remit the remaining 10% minus a small fee to compensate for early funding. For many businesses this gives them the security and peace of mind that they’ll have that extra cash when they need it.”
Mike Antis, Global Vice President – Textura at Oracle Construction and Engineering
“In commercial construction ‘cash is king!’ Yet one of the biggest cash flow challenges is that subcontractors provide the cash upfront to pay for labor and materials before they’re paid by the general contractor for work performed. In a pay-when-paid or even a pay-if-paid situation, that payment can take weeks to come through when processed manually. Meanwhile, subcontractors need to meet payroll, buy materials, and invest in their business.
“Since 2004, cloud applications such as Oracle Textura Payment Management, have been digitizing the process to help eliminate time-consuming and inefficient manual operations by simplifying and automating the invoicing, approvals, compliance and lien waiver management, and disbursement processes. This can help improve cash flow by reducing payment times through gains in efficiency. Additionally, general contractors can also offer early payment programs using those same workflows, so subcontractors can receive payments even faster and with certainty around timing, further improving cash flow.
“Oracle Textura helps improve efficiency for everyone involved. It helps reduces risk by reducing the likelihood of human error and by securely managing lien waiver and compliance processes. With better visibility into downstream payments, everyone in the supply chain can get paid faster, improving cash flow for all, and minimizing the risk of project disruption.”
Sam Steel, Managing Director ANZ at FLEETCOR
“Maximising operational capital is key to sustainable business growth – and sometimes, it can be the difference between the make or break at the end of a busy month. The reality is that not just small businesses, companies of all sizes can benefit from streamlined invoicing and cash management structures. Doing so can save companies’ time, allow for better human resource deployment, and generate financial insights.
“Every expense counts. In the current economic environment, smart solutions that make a big difference don’t need to be too complicated or expensive. With fuel prices fluctuating, for example, companies with vehicle fleets should consider a centralised management solution with a fuel card, like FleetCard.
“Using a single platform to manage fuel payment records and provide data analytics for fleet optimisation can provide both small and large companies with savings, transparency, and simplicity, as well as administrative and accounting insights. It may also help prevent fuel fraud. Deploying a modern payment system will inform fleet managers about expense control, but more importantly, cater to a variety of fleet sizes due to the scalability enabled by technology. All of which, helps a company maximise operational capital.
“After 40 years of operating in Australia, I often come across clients who say that having a monthly summary and invoicing process makes a huge difference. It’s a simple change that brings immediate, effective results.”
Thomas Fu, Executive Director at Motor Culture Australia
“Managing cash flow effectively as a startup is absolutely paramount to its long term success, but can be challenging when your business is first starting up. However, in order to scale up you need to first ensure your cash flow is steady. Creating detailed financial forecasts to anticipate both revenue and expenses in the months ahead, is an essential first step. Make sure you have a clear distinction between ‘essential’ and ‘desirable’ expenses, and dedicate a portion of funds to creating an emergency fund, for any unexpected expenses or downturns.
“As the business grows, it can be easy to lose track of spending, but it’s also vital you maintain a clear understanding of all outgoings. Making minor changes with regards to accounts receivable, like shorter payment terms or incentivising early payments from clients can also make a big difference to your cash flow. However, even with the most financially conservative approach, it’s a good idea to consider partnering with a financial expert or utilising digital tools to help you manage your business’s finances.”
Abid Ali, Founder and CEO of SpendConsole
“Managing suppliers, invoices and payments efficiently is essential for the financial health of any business. AI-based tools incorporated into accounts payable (AP) automation software, for instance, can help you better control and optimise the process, leading to more efficient use of your business resources.
“By automating the AP process, you can:
- Eliminate incorrect and overpayments: AP automation reduces the likelihood of errors in data entry and eliminates the need for manual handling, preventing avoidable, incorrect and/or duplicate payments. This also reduces payment delays stemming from mistakes, ensuring great supplier relationships and the smooth flow of goods and services.
- Accelerate invoice processing times: AP automation speeds up the processing of invoices by automating tasks such as invoice receipt, data extraction and entry, and approval workflows. AI streamlines diverse invoice submission methods for accurate data extraction, enabling quicker payment processing – ensuring you don’t miss out on early payment discounts.
- Enhance financial clarity: AP automation provides real-time visibility and insights into financial metrics, such as payment performance, commitments, liabilities and the status of supplier invoices and payments, helping you to make informed and proactive decisions.
- Ensure compliance and security: Intelligent AP automation systems come with built-in compliance features and security measures to ensure that payments are made accurately and securely. And AI is the silent watchdog that identifies exceptions and minimises the risks of fraud with smart, vigilant oversight.
“In today’s fast-paced business environment, AI-supported AP automation software is a valuable tool for ensuring that your cash flow remains healthy and financial operations run smoothly.”
Craig Dangar, Principal at Vault Business Advisors
“In business we often focus on the top line when everything should be focused on cash flow and ensuring that the business is able to provide consistency. For businesses cash flow is the life blood of the business, ultimately the key measure of success.
“A budget is critical for each and every business, understanding where the money is and where it is going is often a step that businesses fail to take. Some simple methods to manage cash flow are:
- Line by line analysis; read your bank statements and track where every dollar is going, check your expenses and the relevance to your business.
- Make a budget and understand it.
- Use the tools available in your bookkeeping system; it doesn’t need to be hard, there are lots of tools and your finger tips, roll them out and understand your cash flow.
- Once you know your position you need to be critical with your business costs, take a step back work out what can be reduced or cut, and apply this across your business.”