• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

Penguin Management

Outsource Accounting, Bookkeeping & Payroll for Foreign Subsidiary Companies & Branch Offices

  • Doing Business in Australia
    • Resident Director
  • Accounting
    • Xero Accounting
  • Payroll & HR
  • Virtual CFO
  • About
  • Case Studies
  • Blog
  • Contact
  • 1300 319 870

8 Simple Ways To Improve Your Business’ Cash Flow

You are here: Home / Penguin's SME Business Tips / 8 Simple Ways To Improve Your Business’ Cash Flow
Tweet5
Share
Share27
32 Shares

Cash flow. Two words capable of causing a twitch in many a business owner’s eye.

Poor cash flow management is not just a problem in the short term, but can also limit your business’ future plans and growth.

And left unattended, your business suffers, or even cease trading.

It’s likely the biggest factor affecting your cash flow is slow or non-paying customers. But you’re not alone…

At an NSW Business Chamber meeting last year, The Ombudsman, Kate Carnell, of the Australian Small Business and Family Enterprise, said the biggest problem for most Australian small businesses today is late payments and their impact on cash flow.

Page Contents

  • How to take control of your cash flow
    • 1. Set up terms and conditions
    • 2. Stop bad payers before you engage with them
    • 3. Clearly marked payment details
    • 4. Make it easy to pay
    • 5. Offer incentives for early payment
    • 6. Take deposits or prepayments
    • 7. Be strict with account terms
    • 8. Follow up in a timely manner
    • Bonus tip: For really slow payers

How to take control of your cash flow

Don’t fall into the trap of weak cash flow because of slow payers. There is a lot you can do to prevent and limit their effect on your business.

Here are some simple ways you can improve your business’ cash flow:

1. Set up terms and conditions

Before starting a new relationship with your customer, ensure you have a terms and conditions document for the contract and/or sale.

These terms and conditions outline the terms with which you conduct your business and provide protection for any claims against you.

This could be a web page you can direct them to and ask they agree to the terms or a more formal document they sign and return.

This is best written by a professional or legal advisor as it can be a complex issue.

The terms and conditions should include items regarding refunds, payment terms, limitations of liability, dispute resolution and definitions.

2. Stop bad payers before you engage with them

Ask for business references. Although this has little value in ensuring you are paid, you will get a chance to discuss and gather information from other creditors.

Purchase a credit report. Veda holds data on more that 16.4 million credit-active individuals, 3.6 million on companies and businesses and 3.4 million on sole traders throughout Australia.

Creditor Watch provides similar credit reports, with the additional option of sending you alerts about your creditors which may affect their ability to pay.

3. Clearly marked payment details

Ensure each invoice or communication with your customer states all the details they will need to pay you for your products or services.

Ensure that all your bank details are clear and include all the information they will need to make payment, such as international details like your ISBN or SPIN if you have global customers.

Each invoice should set expectations of when payment is expected and the consequences of late payment.

4. Make it easy to pay

Open as many opportunities for your customers to pay. Offer direct deposit and an electronic bill payment service such as BPay or Australia Post Bill Pay.

Provide credit or debit card, direct debit and online payment service options with PayPal, Stripe, or eWay. Whichever is viable and suitable for your business.

Note that some of these methods do have charges applied to them, so choose the payment methods that will suit your customers best.

Many of these charges can be negotiated with the financial institution, so always ask. Passing on these charges to customers has become common practice with many businesses.

5. Offer incentives for early payment

Offer discounts for early payment. My electricity supplier does this. The discount is significant enough for me to pay on time and save money.

Or the reverse, you can charge penalties or interest for late payment, however, there are regulations that need to be adhered to, so check these out before communicating them to your customers.

However, offering discounts for early payment does put your business in a more positive light.

6. Take deposits or prepayments

If appropriate in your industry or with your customers, deposits or pre-payments can work well.

This practice is used more often in the services industry when the customer pays a deposit for future services or products.

Remember to account for the deposit received as a liability on the balance sheet until the goods or services have been rendered!

7. Be strict with account terms

Use payment terms as a privilege when customers have paid on time and have a good history with you. When customers falter, use the payment terms as a negotiation tool.

8. Follow up in a timely manner

By setting strict standards from the very beginning, your creditors see that you are serious about your payment terms.

As soon as the due date has arrived and you have double checked that they haven’t paid, chase them up.

To save yourself some work, there are some great add-ons to your cloud-based accounting software to automate this process for you.

Bonus tip: For really slow payers

If your business deals with large companies that are usually reliable but very slow payers, paying anywhere from 60-90, sometimes even 120 days, try invoice factoring companies.

An invoice factoring company finances your invoices from these clients and provides you with immediate working capital, while the finance company waits for your clients to pay.

The transaction concludes when your customer pays on their usual schedule.

Note that due diligence applies here, as there are fees and charges associated with this type of service.

Some examples are Fifo Capital, Fundbox, or Kabbage or your bank may have this type of finance available as well.


Have you experienced cash flow problems in the past? How did you deal with them?

Or do you have a system in place to manage your company’s cash flow? Let us know in the comments below.

If you found this article useful, please do share it with your network!

Tweet5
Share
Share27
32 Shares

Published: January 11, 2017 · Updated: April 17, 2017 · Filed Under: Penguin's SME Business Tips

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Primary Sidebar

How Can We Help?

Australian Institute of Company Directors Chartered Accountants ANZ Member Logo Penguin Management, Baulkham Hills, is a Xero Silver Partner

Recent Articles You Might Like To Read

App Roundup: 9 Log Book Apps for Smartphone & Tablet (2019 Update)App Roundup: 9 Log Book Apps for Smartphone & Tablet (2019 Update)229 Shares
Australian Business Culture & Etiquette: What You Need to KnowAustralian Business Culture & Etiquette: What You Need to Know35 Shares
8 Simple Ways To Improve Your Business’ Cash Flow8 Simple Ways To Improve Your Business’ Cash Flow33 Shares
9 Problem Solving Xero Add Ons For Your Awesome Business (2019 Edition)9 Problem Solving Xero Add Ons For Your Awesome Business (2019 Edition)31 Shares
Six Reasons Why Your Startup Should Expand to SydneySix Reasons Why Your Startup Should Expand to Sydney18 Shares

Footer

Find Us

Suite 1102,
Level 11,
50 Margaret Street,
Sydney, NSW, 2000

Get directions

Connect With Us

Copyright © 2019 Penguin Management Pty Ltd · All Rights Reserved.
Privacy · Disclaimer · Sitemap · Leave a review