For many businesses, starting the new year can be a stressful time, especially because they have to pay their BAS by the end of February. Cash flow at this time of year can be a real concern for SMEs, but there are ways to avoid the angst that comes with the approach of the BAS.
“It is not uncommon for successful businesses, experiencing high growth, to run up ATO debt. Many SMEs may not have raised invoices from December to mid-January, meaning cash receipts into their bank accounts will be seasonally low around the end of February and into early March. This comes on top of the additional expense incurred in paying for staff’s Christmas leave loading. Even a strong, well-established business can find themselves tight for cash to meet their February BAS.” According to Wayne Smith, the head of Debtor Finance at Scottish Pacific.
Smith has put together tips for SMEs currently struggling with cash flow issues:
- Speed up your collections cycle
Improving the average time taken by customers to pay invoices can really make a difference to a business’s cash flow. For example, a business turning over $110 million and with an average debtor days cycle of 60 days could receive a cash flow boost of more than $135,000 by cutting debtor days down to 55 days. Simple ways to reduce debtor days include making sure invoices show all the relevant information required by the customer to make payment, sending timely payment reminders and putting in place a reminder call program.
- Take deposits on large orders
This way you are not having to outlay for large production costs up front.
- Closely monitor stock
Having too much stock on the floor, especially if certain lines aren’t selling, depletes your cash reserves. If a specific product is a “turkey”, don’t hesitate to sell it off cheaply to turn it into cash.
- Negotiate with your suppliers for longer payment terms
This will help you keep cash in your business.
- Consider discounts for early payment
While you may take a small hit with the discounting, encouraging this to clients and suppliers could result in a reduction in your borrowing costs.
- Look at all working capital options
This should also include debtor finance. With debtor finance, instead of taking on additional debt, an advance is offered on money that is already owed to the business. Debtor finance is for businesses that sell to other businesses on standard trade credit terms. It is particularly useful for labour intensive businesses where wage must be met ahead of payment receipts.
According to Smith, over the past 25 years, debtor finance has become a mainstream funding option for SMEs in Australia. There are currently more than 4,500 Australia SMEs, with combined annual revenues of $65 billion using debtor finance.
On top of the tips above, utilising FlexiFundIt Fee Funding Software can help improve your customers’ cash flow by paying fees in instalments. Our Fee Funding Software is an easy-to-use solution for funding and managing client loans for your professional fees. This intelligent software gives your customers more flexible payment options while securing the full payment for your services.
With this fund collection software, your business can reduce overheads for managing loans and fees while minimising the risk of your clients defaulting on their loans. It also automates your entire funding and payment process, allowing you to control more transactions in less time with less work. Together, these benefits allow you to retain more customers, improve your service, and grow your client base.
Taking a few simple precautions and implementing some key strategies in your business can boost your business cash flow and reduce the volatility in the business landscape you operate in.
To find out more about how our payment software can help avoid those post-Christmas cash flow blues, contact our team today!