Dynamic Business Logo
Home Button
Bookmark Button

By RonaldCandonga on pixabay

Under pressure: Why optimising working capital should be a top priority for your business in 2022

Found yourself paying more for the goods and services you need to run your enterprise of late? You and every other business owner and manager around the country. That the inflation genie is well and truly out of the bottle is no secret: it’s a cold hard fact and one that’s unlikely to change any time soon.

Ongoing supply chain disruption, soaring fuel prices following the onset of military conflict in Europe, and the Reserve Bank’s economic interventions during the Covid-19 crisis have all helped create an economic status quo that has seen the cost of everything from foodstuffs to heavy equipment and housing head north.

Over the 12 months to December 2021, the Consumer Price Index rose 3.5 per cent, with the most significant price increases occurring in the housing and automotive fuel spaces.

‘Prices also increased across a broad range of other goods, with strong demand and supply disruptions leading to price rises for goods such as furniture and motor vehicles,’ the Australian Bureau of Statistics’ January 2022 Consumer Price Index Australia release noted. 

Feeling the squeeze

The Reserve Bank expects underlying inflation will be up to 3.25 per cent by mid-2022. That means consumers and businesses alike need to get used to outlaying more than they may have hoped or expected for materials, stock and services.

If your business is running on slim margins, that may squeeze your profitability and cash flow. 

There’s the option to pass price increases on to your customers – and we see many businesses across the board having to do just that – but steep competition in your sector may preclude you’re doing so in total.

Using a finance facility to tide you through tight patches is one solution, but, in today’s uncertain times, many business leaders are loath to increase borrowings, particularly with the prospect of higher interest rates now looming large.

The struggle is real

Your business can significantly boost its cash flow without taking on the burden of additional debt by speeding up its payment cycles.

Research has repeatedly shown that faster payment times are sorely needed by Australia’s SME sector, in particular. A 2020 survey of more than 1200 SME owners and leaders conducted by financier Scottish Pacific found the average SME was waiting 56 days to be paid and had 16 per cent of its revenue tied up in invoices that were still outstanding after 90 days. 

Cash flow restraints made it impossible for many to take on new work or to make their tax payments on time.

The report noted that time and resources devoted to settling invoices could be better spent on revenue-generating and business-building activities.

Optimising your processes

This is where technology can play a transformative role. By automating your accounts receivable process, you can accelerate the flow of payments from customers’ bank accounts to your own. This will see your business better placed to withstand disruptive events and take advantage of opportunities to expand and diversify.

As the term suggests, accounts receivable automation entails eliminating many of the repetitive manual processes that kept accounts receivable personnel busy in the past: recording transactions, sending invoices, updating ledgers and issuing reminder notices to slow payers.

A cloud-based automated accounts receivable platform can do all of these things smarter, faster and better. Typically, businesses that adopt this technology can reduce their manual processing by as much as 85 per cent.

Even more importantly, an automated accounts receivable platform can provide you with extraordinary insight into your customers’ payment patterns. Mapping them out in detail allows you to develop customised reminder and dunning processes. In our experience, these tend to be considerably more effective than a one-size-fits-all approach, particularly with customers whose unstated but obvious the policy is to wait for a final reminder before funds are released. 

Buyers whose creditworthiness is diminishing are also easy to identify and respond to. Cancelling or reducing their credit after issues emerge minimises the risk of your business ending out of pocket, should they decide to stop paying altogether or wind up in administration.

Towards a stronger future

When inflation is pushing costs up rapidly, ensuring your enterprise is paid on time and applying those funds to your balance sheet is critical.

Doing so frees up cash flow, reduces your need to access external finance and puts you in a strong position to take advantage of emerging opportunities. An investment in automation technology that enables you to achieve these ends is likely to pay for itself many times over.

Keep up to date with our stories on LinkedInTwitterFacebook and Instagram.

What do you think?

    Be the first to comment

Add a new comment

Claudia Pirko

Claudia Pirko

Claudia Pirko is the Regional Vice President – Asia Pacific at BlackLine, a leading provider of cloud software that automates and controls financial close and accounting processes.

View all posts