Cash is like oxygen for small business owners, and keeping a close eye on cashflow is important. Mismanagement of cashflow can have dire consequences on businesses that are waiting for invoices to be paid, as ‘debtor days’ (how quickly cash is collected from debtors) pile up and costs continue to rise.
It is also important to remember that managing cashflow does not just apply to those industries linked to consumer spending. Regardless of the sector, cashflow will be affected either directly or indirectly during the holiday season given many businesses trading hours are irregular and suppliers take a break.
In light of this, there are some basic steps businesses can take now to ensure their cashflow is managed efficiently during busy periods to allow their business to grow.
Avoid debt problems and learn how to collect debt more efficiently by employing these five tips:
1. Accurate record-keeping
Central to any success is a robust profit and loss 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.
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. Offer 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 EFTPOS, BPAY, over the telephone or the ability for your customers to make payments to you online—may help you collect funds faster.
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.
Each additional day it takes a business to receive payment has a measurable financial impact. Australian businesses recently recorded one of its worst ever figures when it comes to paying their debts on time, according to Dun & Bradstreet’s Trade Payment Analysis for the September 2011 quarter.
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.
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.