Cash flow is the lifeblood of a business, however all businesses no matter how big or small they are encounter cash flow challenges.

According to a report by the Australian Small Business Family Enterprise Ombudsman positive cash flow was cited as among the top three stress points for business operators. Another study by Wakefield Research showed that small business owners have lost out on no less than $10,000 in potential earnings after nixing projects because of cash flow woes. Unfortunately these aren’t isolated incidents; 63% of small to medium enterprises have cash flow problems more than once a year.

What can be done to help with these issues? Here are three things that can help:

Accounts Receivables


This is the leading problem with cash flow problems in a business, in fact Wakefield Research found that close to one-third of small business owners had at least $20,000 in past due receivables.

Let’s face it if cash isn’t coming in, services or product isn’t going out, not to mention problems affecting payroll, inventory, utilities and a host of other costs associated with business management.

There are a variety of strategies you can adopt or implement that can help with this and they include:

Getting on the Same Page

As with many things in life a breakdown in communication can be the problem. If customers or vendors are unclear about when a payment is due and what’s owed then they obviously won’t pay when you need them to. The best way to avoid these misunderstandings is to be proactive and clearly state when your bills are due.

This needs to be done from when you first form a relationship with a vendor or client so that everyone is clear about expectations moving forward.

Make Past-Due Receivables a Priority

It’s never a comfortable feeling to have to request payment especially when a client or vendor is new and you want to come across as appreciative of their business. However, respect goes both ways so take the emotion out of it and make your receivables a priority.

What we mean by this is that if a receivable is not paid the day it’s due, contact them within 24 hours to ask why. It could be that they have misplaced the invoice or that they misunderstood the terms.

They could also be having cash flow problems themselves in which case you may be able to organize a payment arrangement so that you can stop problems arising going forward.

Offer Incentives for Early Payment

Clients and vendors who pay early help you to avoid cash flow issues later on. With this knowledge in mind you may want to offer some kind of incentive for early payment. A discount is often the kind of incentive that people appreciate and take advantage of.

Subscription Based Arrangement

Depending on what service or product you supply you may like to move your business (or part of it anyway) to a subscription based model. This is a fantastic model to keep consistent cash flow in your business and certainly seems to be on the increase with companies such as Netflix, Hello Fresh, Spotify and more.

Forbes wrote about the state of the subscription economy in May 2018 and said that the subscription market had grown by more than 100% a year over the past five years with sales generating more than $2.6B in 2016 to $57M in 2011 (US dollars). In fact Business Wire has suggested that their latest numbers indicates the industry has grown by over 300% from 2012 to mid 2019.

Managing Creditors


Building up a good relationship with your creditors is an invaluable lifeline when cash flow is tight. Let’s look at how your relationship with your creditors can help the overall health of your business.

There are different types of creditors to consider, creditors that are your financial backers such as your bank should be treated as though they were an important investor. Giving them regular updates on your business’ performance and cash flow forecasts are important. Alert them ahead of times to any problems that look like occurring as being honest and open will go a long way to ensure your backers continue to offer favourable credit terms. If they refuse you credit when you need it most it can be like a death nail for your business.

Another type of creditor is your suppliers. If you build up a good relationship with your suppliers you may be able to come to longer terms for payment or they might offer you a discount for prompt payment or some other service.

You need to keep a good relationship with your suppliers as well, a key ingredient in keeping suppliers happy is that when you make an agreement on terms make sure you stick to them. If you are going to dispute an invoice do so straight away, do not wait until the credit period has expired. Also if you do go through a period where cash flow is tight make sure you communicate with them and see if you can extend your terms temporarily.

Finally you have what are referred to as inflexible suppliers which usually include government bodies, power and telecommunication providers. This type of supplier is often hard to forge a close relationship with and can simply cut off your service if you breach your terms.

Again the best thing with these suppliers is communication. One government organization that you may have to deal with is the ATO and luckily if you have cash flow problems you can contact them directly and organize a payment plan.

Managing cash flow effectively will pay a huge part in keeping your creditors happy as it will allow you to plan for expenses, gaps and notify the relevant groups early if you’re going to default on a payment.

Using an Accountant to do BAS Returns


A bonus tip for helping cash flow is to get an accountant or tax agent to prepare your BAS for you. What many businesses aren’t aware of is that if you do your BAS through an accountant or registered agent you will get an extra four weeks before lodgement is due. This can really help with your cash flow.

If you need help with your cash flow or any other business advice then why not phone or email us to make an appointment with one of our business accountants, you might be surprised as to how we can help you achieve your goals.