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Manage cashflow for the benefit of growth

Effectively managing your cashflow can reap big rewards for small business owners.

There’s no doubt that life as a small business owner is challenging. Confidence levels have fallen, profitability has been stretched and cashflow remains a key concern.

Despite challenging conditions there is, however, a remarkable resilience amongst SME business people and whilst many of them are currently being fairly conservative in how they run their businesses, they do remain focussed on the longer term.

Every business has unique challenges so it’s vital that the basics are never overlooked to ensure that cash flow is the cornerstone of their business. With this in mind there are some basic steps and products businesses can take advantage of to ensure their cashflow is managed efficiently as possible for their business to grow.  

Ten tips for businesses to manage their cashflow.

1.    Accurate record-keeping Central to any success is a robust Profit and Loss (P&L) and cashflow analysis to reveal your business’ true position at month end. This will help you understand your current debt position and associated obligations and determine the current profitability of your business.

2.    Develop and implement solid collection plans Develop an action plan for overdue invoices. Try to understand your customer’s situation and carefully balance the need to receive payment with your relationship with your customer. Each additional day it takes a business to receive payment has a measurable financial impact. While we have seen a marginal improvement in payment days (an improvement of 3.3 days compared to the March quarter last year), developing and implementing a debtor collection plan is important.

3. Train staff to collect payments on time Train and reward your staff for boosting sales and collecting payments on time. Sales and collections need to work together with clarity over responsibilities.

4. Understand and negotiate invoice terms now prior to the holiday season Explore options such as offering a discount to your suppliers for early payments. Making the same offer to customers who owe you payments may also help you receive your funds quicker.

5. Offering easy payment options for customers Give your customers a variety of simple payment methods to make it easy for them to pay on time. Offering a choice of payment options, whether they be EFTPOS, BPAY, over the telephone or the ability for your customers to make payments to you online, may help you collect funds faster.

6. Be consistent You should always take action. A crucial part of your debt collection policy is to be consistent in the action that you take. You’ll send mixed messages to your credit customers if you sometimes ignore late payments and at other times take a harder line.

7. Outsource your debtor management For businesses that want to beef up their debtor management, but don’t want to build in-house accounts receivable capacity, consider outsourcing as an option.

8. Reducing the reliance on paper Managing your everyday business transactions and finances online will help reduce staff administration and simplify payments, giving you greater control of your business.

9. The sooner you chase the debt, the more likely you’ll get paid The older the debt, the less likely you are to get paid. This means you need a system to identify and bring to your attention any credit sales as soon as they become overdue. Most accounting programs have a system to identify or automatically flag overdue bills for your attention.

10. Talk to your banker Talking to your business banker can help you get through the cashflow squeeze that often precedes a profit boost.

These are all good ways of ensuring your customers pay their invoices on time, and your cashflow is properly managed. The golden rule is, the quicker you manage your debtors the more likely it is that you will receive prompt payment.

Business owners who need extra help to get them through those debtor days should speak to their business banker about invoice financing options, which provide them with an agreed percentage of the value of an invoice immediately.

But the most important thing to remember is that the more disciplined a business is in collecting debts, the more likely they are to be paid on time, helping to lower your costs and maximising cashflow.

Invoice finance

Invoice finance is quickly catching up to overdrafts as the preferred source of working capital funding for many SMEs. NAB has seen an increase in customers using this facility, which is able to provide businesses with access to funds based on the strength of their business credit sales.

The invoice financing process is relatively simple. Businesses with approved invoice finance limit contact their lender and directly access funds owed to them from unpaid trade or sale invoices. Their lender makes available an agreed percentage of the face value of those invoices and when the invoice is paid, the business will receive the balance, less any adjustments.

Depending on the individual circumstances and requirements of a business, invoice finance can stand independently of existing finances or it can be attached to other forms of lending and co-exist with, for example, asset or trade finance. One of the main benefits of invoice finance is that if a business has a good client base, there may be an opportunity to leverage against monies owed.

While invoice finance was a relatively niche product 10 years ago, it is now offered by a broad spectrum of banks and financial institutions as a mainstream funding alternative for a growing number of SMEs, medium-sized corporate and listed companies. NAB has long been the market leader with market share now over 39 percent.

In fact, Australian businesses had turnover of $61.8 billion through invoice finance in the 12 months to March 2012.

Accepting payments on-the-go

Mobile solutions or contactless payments are providing businesses with simpler, faster and more convenient ways of transacting. This not only helps businesses accept payments quickly, but can also save time in eliminating as much manual handling and duplication as possible.

NAB small business customers can now accept credit card payments on the move via mobile phones and tablets under the latest upgrade to mobile banking platforms. The increased functionality on NAB’s Business Banking merchant platform, NAB Transact, will enable businesses to take credit card payments without the need for a merchant terminal or additional device.

Accepting payments via a mobile phone reduces the administrative burden of invoice payments via cash and cheque and allows true mobility for those businesses on the road. Transactions occur in real time so the risk of fraud is also significantly reduced as the payment outcome can be seen on the spot.

Updating your cashflow forecast

A cashflow forecast can help predict upcoming cash surpluses or shortages to help you make the right decisions. Cash is like oxygen for a business – mismanagement of cashflow can have dire consequences on businesses that are waiting for invoices to be paid as how quickly cash is collected from debtors (or debtor days) pile up and costs continue to rise.

Having a healthy cashflow enables a business to cover everyday and unexpected costs, ride out fluctuating economic conditions and plan for growth.


Important Note: Any advice in this editorial has been prepared without taking into account businesses objectives, financial situation and needs. Before acting on this advice, you should consider its appropriateness to you.


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David Gall

David Gall

David Gall is executive general manager, Working Capital Services, NAB. www.nab.com.au/cashflow

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