Ten key strategies to keep the cash flowing

Cash is king – particularly within a business. You might be making sales left and right, but you may have insufficient cash during critical periods if you’re not collecting funds from these transactions. This, in turn, can force you to miss out on key investment opportunities, struggle to pay creditors, incur extra interest on borrowings and create unnecessary stress.

The Australian Tax Office is also increasing its efforts to crack down on unpaid taxes and outstanding debts. Although such obstacles have always presented challenges, today’s small and midsized enterprises cannot afford to allow poor cash flow to be the demise of their business.

A healthier cash flow significantly benefits your business, helping ensure you can focus on profitable activities and remain in good standing with partners and creditors. Here are ten ways to whip your cash flow into shape:

1. Polish your paperwork

Good documentation is essential when it comes to an efficient collection cycle. Leverage purchase orders, written sales confirmations and invoices to confirm the agreed arrangements with your customers.

2. Use the cloud

Cloud accounting offers a one-stop solution for small business owners. Software such as Xero includes online invoicing and payments – making it easier and faster to collect payments – but also offers cash flow management and a real-time view of your financial position.

3. Be firm on credit limits

These standards exist for a reason: to protect you. Don’t shy away from being firm; consider asking new customers to pay cash until they’ve established a strong history with you. Converting small accounts to cash-only (COD) transactions can also cut administrative time. Undertake credit checks on new large customers. Also, consider the use of personal guarantees from customers where appropriate.

4. Clarify due dates

Ensure your invoices articulate deadlines for making payments. Cloud accounting software such as Xero and MYOB can automate this process using templates – to make sure due dates are clear and consistent.

5. Use technology

There are numerous options to get ‘paid on the go’ using mobile technologies. Talk to your bank or software provider about your options and also make use of payment systems within your cloud accounting software.

6. Direct debits

Where possible, use direct debits to have your customers pay for goods and services you provide. It’s then paid on time with less effort for both parties.

7. Chase late payments

Implement a mandatory process for your team to follow up on invoices that aren’t paid on time – you should always make contact and enforce consequences for non-payment. Make use of automated reminders in your accounting software, too.

8. Stop paying bills too early

Sending cheques to your creditors before due dates can take a toll on your available cash. If your vendors require early payment, see if you can use your payment history to extend their terms. Alternatively, consider negotiating settlement discounts.

9. Turn unnecessary assets into cash

Take a look at your plant and equipment. If you have items you aren’t using, consider selling them so you can put the funds into something more valuable. The same goes for seasonal stock – offer incentives to move them off your floor.

10. Get the team on board

Ensure your employees know the importance of cash flow so they’re on the ball regarding collections. No one likes asking for payment, but employees need to understand the connection of good collections to business success. You could even align your compensation packages with these objectives.

Keeping sufficient funds on hand can be challenging for many companies – but it’s critical to sustaining strong operations and growing your business. By speeding up your collection cycle and optimising your cash flow, you can make the most of the resources you already have.

How we can help

Our Management Accounting and Bookkeeping teams can help you create and maintain a reliable cash flow. For advice on your personal circumstances or for further assistance, please contact us.