It’s no secret that cash flow can make or break a business. But with only 52 per cent of Australian small businesses reporting as cash flow positive, what can they do to be financially functional in FY19? Peter Cowan, PayPal Australia’s Director of Small and Medium Businesses shares his quick hacks that could help close the cash flow gap.
- Data is power
A Xero survey found that three out of four Australian businesses store their receipts in shoeboxes. And, with the average Australian business churning through 100 receipts and invoices a week, suddenly one shoebox doesn’t seem like quite enough.
With all the manual time and effort that comes with paper-based data, it might be time to let technology do the heavy lifting. Moving to cloud-based technology, for example, can bring with it a whole host of benefits, including the ability to access data and business information anywhere and collaborate easily across geographical borders.
According to Brock Sykes, the founder of Odd Pears, businessescan easily manage cash flow using a combination of online-based platforms Xero and PayPal. “With Xero, we’re able to reconcile transactions for day-to-day accounts and PayPal. This can provide an overview of how our finances are being used across the business. It can be particularly insightful over the long term where obvious patterns and trends begin to emerge.”
- Try the personal touch
An advantage small businesses have over bigger business is the ability to offer genuine, personal service. And this can work in your favour when it comes to cash flow, too. As soon as a client misses a deadline, pick up the phone.
Calling people directly to have a friendly conversation about payment is much more effective than a barrage of impersonal emails. You can solve the problem immediately over the phone (rather than the back-and-forth that comes with emails), and it’s harder for them to ignore a voice than an automated email.
- Consider your customer payment terms
Each customer, supplier and circumstance will be different, but it’s always worth reviewing your payment terms. Is it possible to get paid upfront? Or to receive a 50 per cent down payment for services provided? Find out what the industry standard is for your business, and then consider things like the payee’s history, size of invoice and the job itself.
For example, One Seed has a blanket rule across the board and they don’t deviate from it. Founder and director, Liz Cook, says their clients “know our terms and they don’t question them because we work on the relationships first, and we make it easy to do business with us. They know they are valued and they respond by working within our terms.”
- Be bold enough to barter
Don’t be afraid to ask suppliers and wholesalers for a better deal. It could be deferring the whole or part of a payment, extending a due date, or giving you some leeway. The worst thing that can happen is they say no, and you can always shop around for a better deal from someone else.
- Think strategically
Make strategic decisions, such as investing in new equipment or holding a sale to clear excess stock, based on the ebbs and flows of your business. Effective financial forecasting can help you plan for and achieve your goals. And there are plenty of tools out there to help.
It’s important to anticipate and accrue cash when business is booming, but equalising spending is also important. Just because a few big clients all pay in one month doesn’t mean it’s time to go on a spending spree, so track expenses over a three-month period to see where your outgoings are and average them out.
When cash flow is really tight, or you need to acquire inventory or equipment during a big growth phase, there are alternative loan options such as PayPal Working Capital which can help you get the funding you need, when you need it.
- Send invoices promptly
Australian businesses are collectively owed $26 billion at any one time. For a small to medium business, outstanding debt can be tough. But there’s no point complaining about it if you lag in sending out invoices, or even worse, don’t send them! Make it easy for customers to pay, by invoicing on time and giving them a range of payment options. Add penalties for late payments, or discounts for early ones.
According to Brock Sykes, giving clients a few options makes it easy to do business with you. “For retail customers buying from our online store, we give them several options for checkout, including PayPal, credit card payments and Apple Pay. For wholesale clients, they have the option of paying via direct deposit or PayPal. And for events or walk-in clients, we use PayPal here (or cash, of course!). Giving clients a few options makes it easy to do business with you.”
Peter Cowan, PayPal Australia’s Director of Small and Medium Businesses.