How to avoid starving your business of cashflow

Imagine this: Your business sales and activities are going gang busters, but at the end of the fortnight there is no money in the bank to pay your staff. If you’ve been there you would know how stressful a situation this can be. You want to do all you can to avoid this happening again. So what’s the magic pill?

The answer is to pay attention to your cashflow needs by establishing systems and regular processes to firstly issue invoices regularly, and secondly to follow up your debtors if they fail to pay on time. You probably think that I am stating the obvious here, yet I find in my practice as an accountant that this is an area that many small business owners are neglecting and as a result their business is at risk of failing. The Australian Securities and Investment Commission have reported that 41% of companies reported business failure due to inadequate cashflow or high cash use.

Since it is a significant factor in making or breaking a business, I want to highlight a few key points about creating positive cashflow for you here.

Accounting Software

It is vitally important that you use accounting software to suit your business needs. There are many software packages nowadays that allow you to do things like:

• Online invoicing

• Payroll information

• Notifications for urgent payments (that you owe or that are owed to you)

• Bank account synching for easier payment processes

• BAS and GST management

• Accountant collaboration

• Cash flow setup

Making regular updates of incoming and outgoing payments in your system will allow you to head off any cashflow crisis in advance.

Before the Sale

Whether you’re selling goods or services, you’ll need to be clear about your Terms of Trade with your customers. Telling them upfront what they can expect from you helps to eliminate unintended surprises.

Invoices

Issuing invoices on a regular basis and in line with your Terms of Trade is the most basic requirement to taming the cashflow beast. Your customers need that piece of paper to make their payments. Delays in issuing invoices will put you further behind in meeting your business cashflow needs.

After the Sale

A happy customer is a paying customer! Developing and maintaining good relations with your customers is as important to your business success as giving your customers a variety of payment options, eg cash or cheque, credit card, bank transfer, etc. The more options they have, the more likely it is they’ll pay in time.

If you have customers that have not paid their invoices in time, be sure to send reminders to them about when payments are due. Remind them of how much it’ll be and of any additional costs they could incur if they’re late with their payment. At my company AD Hamilton & Associates we use a series of standard debt collection letters to follow up our outstanding client accounts according to a preset schedule.

Debt Collection

When all other efforts have failed to get your customer to pay their outstanding invoice, you can also use professional debt collectors as a last resort.

Debt collectors work on behalf of companies to contact individuals or other businesses that have fallen behind on payments to enquire about why said debts have occurred. Debt collectors will aim to resolve the outstanding debt over-the-phone and will only visit an individual or business at their physical location if they cannot reach them by any other means.

So you see, there is nothing “magic” about this approach to keeping on top of your accounts. It is all about establishing effective financial administration systems to keep the wolf from your business doors.

If you would like a complete system to manage your debtors, please visit our website at www.straighttalkat.com.au, and then go to the Resource Centre, where you can access our FREE eBook “Company Finances and Debt Collection”.

Copyright © 2023 Robert Bauman.