Small Business Cash Flow – 8 Shortcuts To Improve It

"the average SME in Australia is owed on average $38,000 each. Furthermore more than one third of all SMEs surveyed said they had to take money from their personal finances to keep their business cash flow on track."
small business cash flow

When it comes to any small business cashflow is king. That said so many small business owners regularly struggle with ensuring to keep this a priority. Often it’s their invoicing process that is the culprit – more on this later in this post. Issues with cashflow can result in all kinds of pressure including poor decision making, impacted staff members by need to delay their salary payments, impacted suppliers that drive the business with delays in paying their invoices as well as the impact on your client relationships. In this post we are going to talk about a few simple strategies you can put in place today to increase your small business cash flow and mitigate this pressure.

Table of Contents

Managing Your Cash Flow Statistics

Firstly some statistics, according to the Invoice Market’s SME Cashflow Crisis Report which was prior to the situation with COVID-19, it stated that the average SME in Australia is owed on average $38,000 each. Furthermore more than one third of all SMEs surveyed said they had to take money from their personal finances to keep their business cash flow on track.

Shortcut 1- Invoice Jobs On Completion

For many business owners they tend to wait til end of month to send out all invoices as they are simply too busy being “on the tools” and dont want the “admin” to get in the way of the work. If this sounds familiar to you I have to encourage you to reconsider invoicing your jobs on completion. There are some great options available such as Freshbooks or Xero that allow you to send an invoice from your mobile app – any good accountant will attest to this. And you can do this as the last step when you are leaving a job. If you assume that most customers take around 15-30 days to pay (if you have the standard 30 day payment terms)– you are shaving off anywhere up to 30 days off the timeframe to get the money in your bank account.

Shortcut 2 – 7 Day Payment Terms For All Clients

Unless you are contracting to very large companies that have compliance and procedures around a certain length of payment terms, there is zero reason why you should not put in place 7 day payment terms immediately. They are completely reasonable in todays day and age. Furthermore make it super clear before clients sign contracts what the payment terms are so there are no surprises or complaints.

Also be very wary of someone who asks for longer payment terms. Why? Firstly as they might be a headache down the track. Secondly though as you do not want to entertain having different payment terms for different clients. It will make it harder to manage followups and chasing payments if all your clients are not on the same identical payment terms.

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Shortcut 3 – Introduce Deposits for Larger Jobs

Dependent on the size of the job consider introducing installment payments so you get some of the cash upfront. This also allows the client to pay a final amount on completion. For example a landscaper who needs to go and source hardwood timber for a decking job. Prior to commencing the work he would need to ensure he structures his invoice to secure a deposit in advance. This way he is not under undue cashflow pressure. Consider a standard framework you can apply with your invoicing software. For example 3 or 4 milestone payments throughout the work you complete for your clients.

Shortcut 4 – Invoice Immediately For Paused or Stalled Jobs

In the current climate where there is less certainty for consumers with spending etc, its important as a small business owner to have a mechanism to invoice for jobs which stall. This should be put into the terms and conditions which your client needs to sign prior to starting a job with you. – This way you are eligible to recoup monies owed for incomplete works when they are at fault of the client. This is a great way to impact your small business cash flow.

Shortcut 5 – Have Clients Pay Supplier Direct

Its advisable to never hold credit for your clients, as attactive as it might be to put materials etc on your credit card and then invoice the client. You are introducing unecessary risk. See if the supplier instead can invoice your client directly – this should be feasible and will reduce you being on the hook for a late paying client. Not to mention you won’t have to invest time in chasing up your clients to pay your suppliers who are also chasing you. If you cant have your supplier invoice your client directly, then ensure the cost is covered in full by an upfront deposit.

Shortcut 6 – Introduce Followup For Late Payments

Cash flow apps for small business like Xero have simple email automation you can leverage to ensure late invoices are automatically followed up. If you are not sure about this feature, then I encourage you to check with your admin staff and or supplier. If you are dealing with high level of jobs then automating the process of following up on invoices might have a significant impact on your cashflow and successful payments being made.

Shortcut 7 – Move away from physical premises if viable

If your business has the ability to not rely on a physical premises, which will come with an overhead of lease and other costs etc you should consider understanding what parts of the business really rely on the physical location. Obviously if you are a cafe or hospitality based business there is no option. However if you are a retail shop consider investing more in moving to an online store. There are several great solutions out there like Shopify that can help you quickly generate an online store and ensure your cashflow can remain intact while reducing overall costs.

Shortcut 8 – COVID Small Business Cash Payments

You will likely already be well aware of this however eligible SMBs in Australia can have their income tax payable reduced via a Cashflow incentive for small business introduced by federal government earlier in the year. This cash flow boost is significant in that it can provide between $20,000 to $100,000 boost amounts just by lodging your activity statements up to the month or quarter of September 2020. The beauty of this is most businesses simply get the amounts credited to their account when they lodge their activity statement.

Summing It Up

In a post COVID world cashflow will remain king for small business. Its worth speaking to your accountant also about ways to increase your small business cash flow as they will have a solid understanding of industry specific opportunities. Hopefully with the changes mentioned in this article you will be on the right track to making some positive change soon.

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