Cash flow enables a business to meet operational objectives and invest in growth. Businesses don’t always run smoothly, and even profitable companies experience cash flow problems every now and then. Cash flow issues start when debit outweighs the money coming into your business. It is often temporary, but chronic cash-flow pain can cause a severe threat to your business.
Did you know that more than a third of Australian businesses need to cash in their own personal savings to deal with their business’s cash flow issues? Furthermore, there is an estimated $76 billion worth of outstanding invoices from over two million businesses out there, sitting unpaid. Cash flow is a serious issue that is one of the leading causes of business failures. Don’t let a cash flow issue stop your business. Gain control over your finances with these solutions:
Option #1: Audit or Track your Finances
High overhead expenses can hurt your cash flow when not corrected. These are costs that are not directly related to selling your product or services. For example, office and warehouse rent, utilities, repairs, accounting fees and your business technology and communication services. Strictly auditing/tracking these daily expenses to establish necessary and discretionary spend can help you see which costs can be cut back or replaced with a cheaper alternative. If you’re not sure, try going without the service for a few days – did it make a meaningful difference? If not, now’s the time to get rid of it.
Option #2: Create a Cash Flow Forecast
A cash flow forecast can give you an overview of your regular income and expenses. Essentially, a cash flow forecast means taking a look at the previous trends of your cash inflows and outflows to predict the money you’ll need for a particular future period. It’s similar to a P&L budget; however, the focus is on cash, not revenue, expenses and profits. It’s very useful for preparing for situations such as upcoming seasonal demands or while waiting for critical customers to pay their invoices to avoid sinking too low on cash.
Option #3: Ask customers to Pay on Time
According to Xero’s Paying the Price report, Australian SMEs in 2019 experience late payments exceptionally regularly. When paid late, it’s usually by more than three weeks. That’s on top of the standard payment terms. This means many smaller businesses are waiting up to three months to receive cash.
Reduce the risk of late payments by sending the invoice to your customer once the orders have been fulfilled. Automating your invoice can ensure that it’s error-free and prevents delays or problems. The sooner you send the invoice, the faster you’ll receive the cash. Once you’re sure that the invoices you sent are accurate, you also need to remind your customers to pay on time. You can also consider offering an incentive or discount to encourage clients to pay immediately and/or on time.
Option #4: Use a Small Business Line of Credit
With a small business line of credit (LOC), the lender authorises a set or maximum credit line and lets you pay interest only on the portion of the money you have actually borrowed. It’s a flexible solution, but remember that you cannot carry a balance indefinitely and the money you borrowed needs to be paid in a particular time.
Option #5: Access a Short-term Business Loan
Short-term business loans have shorter repayment schedules compared to traditional business loans. Application and processing are comfortable, and you have consistent repayment terms. The repayment term can range from three months to a year. It’s an excellent choice for a busy season or for buying equipment – since you get the cash right away.
Option #6: Leverage Your Unpaid Invoices
Methods of invoice finance operate similarly to a revolving business line of credit. This means that you only pay a fee for funds you actually use. Once the outstanding invoices have been paid, you can access additional funding from your new invoices. It’s a great solution to scale your business as it’s based on the sales you make. Here are two slight variants:
Invoice discounting is a smart and quick way to solve your cash flow problem. It’s flexible and gives you the money you need upfront quickly. It also spares businesses from high-interest rates compared to other financing options.
“There’s no need to wait for a month or two for your invoice to be paid.”
Working capital finance is another option for short-term borrowing. With this, you remain in charge of your own sales ledger and collect the payment from your customers. There’s no need to wait for a month or two for your invoice to be paid. You can get the money by selling your invoice as early as 24 hours.Whatever the cause of your cash flow problem, you need to act fast and proactively to control the situation. TIM Finance are the experts in the field, offering invoice financing and discounting as a solution for your cash flow issues. Get in touch to unlock tomorrow’s cash today!