Cash is king – particularly within a small business. Your organisation may be making sales left and right, but if you’re not collecting funds from these transactions, you may find yourself with insufficient cash during critical periods.
This, in turn, can force you to miss out on key investment opportunities, struggle to pay creditors, incur extra interest on borrowings and create unnecessary stress. The Australian Tax Office is also increasing its efforts to crack down on unpaid taxes and outstanding debts. Although such obstacles have always presented challenges, today’s small and mid-sized enterprises can ill afford to allow poor cash flow to be the demise of their business.
If governments and your competitors are taking a more proactive approach to their collection cycles, you should too. A healthier cash flow is a significant benefit to your company, helping ensure you can focus on profitable activities and remain in good standing with business partners.
Here are ten cash flow resolutions every small business should make in 2015:
- Polish your paperwork. Good documentation is essential when it comes to an efficient collection cycle. Leverage purchase orders, written sales confirmations and invoices to confirm the agreed arrangements with your customers.
- Use email. Offer to email invoices to your customer’s nominated address to speed things up and help make it easier for them to pay faster.
- Be firm on credit limits. These standards exist for a reason – to protect you. Don’t shy away from being firm, and consider asking new customers to pay cash until they’ve established a strong history with your business. Converting small accounts to cash-only (COD) transactions can cut administrative time as well. Undertake credit checks on new large customers, and consider the use of personal guarantees from customers where appropriate.
- Clarify due dates. Ensure your invoices articulate deadlines for making payments.
- Use technology. There are numerous options to get “paid on the go” using mobile technologies. Talk to your bank or software provider about your options.
- Direct debits. Where possible, use direct debits to have your customers pay for goods and services you provide. This ensures invoices are paid on time and require less effort for both parties.
- Chase late payments. Implement a mandatory process for your team to follow up on invoices that aren’t paid on time – you should always make contact and enforce consequences for non-payment.
- Stop paying bills too early. Sending cheques off to your creditors before due dates can take a toll on your available cash. If your vendors require early payment, see if you can use your payment history to extend their terms. Alternatively consider negotiating settlement discounts.
- Turn unnecessary assets into cash. Take a look at your plant and equipment. If you have items you aren’t using, consider selling them so you can put the funds into something more valuable. The same goes for seasonal stock – offer incentives to move them off your floor.
- Get the team on board. Make sure your employees know the importance of cash flow so they’re on the ball when it comes to collections. No one likes asking for payment but employees need to understand the connection of good collections to business success. You could even align your compensation packages with these objectives.
Keeping sufficient funds on hand can be a challenge for many companies – but it’s critical to sustaining strong operations and growing your business. By speeding up your collection cycle and optimising your cash flow, you can make the most out of the resources you already have.
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About the Author:
Darren Crothers is a Brisbane-based private clients partner at BDO Australia. With more than 20 years of experience working with clients across a broad cross section of industries, Darren specialises in business consulting services such as business valuations, purchase and sale of businesses, budgets and cash flow projections, benchmarking financial performance and taxation advice and structuring. www.bdo.com.au