Poor cash flow can sink a good business, even if it is profitable. In fact, poor cash flow is the main reason why majority of the business fail in the first 5 years. But the good news is the cash flow is predictable to certain extent. So a little bit extra works may save your business from potential cash flow issue. In the following post, we will discuss what you need to do to avoid cash flow.
Bill your client on time
Consistency with billing and following up with clients to collect the payment at the earliest time possible. This is especially important for the small business that dealing with multiple clients. Yet, we still hear clients say they forgot to invoice the job on time. Small business owners should bear in mind that the job is not finished until you get paid. And do not expect every clients to make payments without you chasing hard. At least you should review the ledger on monthly basis and chase outstanding payments accordingly. Offering discount for early payments can also help you collect the payments on time.
Plan your future payments
Most business have direct debit payments. A good budgeting can helps you to keep in track of the direct debit payments so you do not risk defaulting the payments. For other invoice that are on vendor terms, try to negotiate the term that suits you billing circle. Ideally your payments circle should be consistent with your billing circle.
Know your creditors
Well. this seems to be easy. Just count the unpaid invoices and that is all I owe. But is this true? You may have more creditors than you think. The ATO, for example, need to be considered as a creditors if you have payment plan setup in place. Same as the finance providers. You need to budget these future payments in order to avoid potential cash flow issues.
Access credit facility with caution
Check the interest rate for your credit cards, overdraft account and other credit facilities and see how much interest you pay. The credit facility itself is never the solution to your cash flow problem. Your business need to generate enough positive to manage the outgoings. On the other hand, this does not means you should never use credit facilities. With good financial planning, the credit facility is a good tool to help ease your cash flow problem. Before making the decision, you should check with the loan specialist to see what is the best option for you.