Have you ever experienced cash flow problems in your business?
Chances are that if you have, it’s not an experience you’d ever like to repeat. You might still be struggling with the consequences of having more debt or you might be continually trying to scrape together enough cash each month to pay your bills.
Having a positive cashflow is one of the essential components of running a business, yet it often seems to be something over which you have the least control. Your customers pay you late, which means you’re not getting the cash in on time to meet your own commitments. You may find yourself unable to take advantage of early payment discounts with suppliers or being hit with late payment fines, all of which means that your cash flow suffers even more. It can be a vicious cycle from which it is hard to escape.
So how can you ensure that you’re able to collect what’s owed to you on time? Is there a way to maintain a consistent cash flow even if your customers don’t pay you on time?
How do you invoice?
Are you invoicing consistently and promptly? It doesn’t matter whether your customers owe you a little or a lot, invoicing clearly and regularly can help you to get paid more quickly.
If you’re not invoicing, you won’t get paid. Your customers won’t pay until they receive an invoice, even if they know what they owe you. Instead, send out your invoice as soon as possible so that customers know how to pay you.
Invoices are an important financial document. They’re official records that tell your customer what they owe, how to pay, what your credit terms are and how you’ll collect the debt if payment isn’t received on time. This can motivate them to pay the invoice quicker if they realise that you’ll use a debt collection agency to chase up their debt sooner rather than later. Nor should you consider debt collection an option of last resort, after you’ve already waited weeks for payment. It can often be more effective to engage specialists than risk a serious breach to your cashflow.
Australian businesses will wait an average of 14.4 days past the due date to pay an invoice. Big business (those with more than 500 employees) wait an average of 18.2 days past the due date. This is a long lag time between providing your products or services and collecting payment, especially if you rely on bigger companies. Waiting to invoice means you’ll be waiting even longer for payment, which can be seriously risky for the health of your business.
Where’s your risk?
You’ll probably already know where your high-risk debt exists. Perhaps there’s a customer who consistently pays their invoices late or must be chased continually for months for payment. You may want to reconsider doing work for them, especially if the amount of work they need increases.
For the health of your cash flow, analyse where your greatest risk lies and take steps to mitigate this risk. Dun & Bradstreet analysis shows that for a business turning over $10 million per annum, reducing their debtor days from 60 to 55 results in a cash flow increase of more than $135,000. This could mean the difference between positive and negative cash flow for your business.
Continue to drive sales
Sales are still critical to the health of your business, and you should always be looking for ways to make new sales which in turn drives business growth.
Do you have a well-planned and executed sales strategy? Does your sales team understand exactly what’s required of them? Do you need to invest in business development? Whatever the case for you, increasing sales will increase your turnover and drive growth, leading to new opportunities.