Cash flow is the life blood of a business and is the measure of money flowing in and out of your business at any given time. Some simple steps can really IMPACT your bank balance!
In an ideal business cycle, you should always have more cash flowing in than flowing out. The reality is however, that most businesses have to produce or deliver goods/services to their customers while also paying their staff and suppliers before they get paid themselves.
This lag in payments in and payments out is often a major challenge for businesses and how well it is managed is critical to the business’ immediate financial health and long term sustainability.The task of managing cash flow is increased in complexity as the number of transactions and amounts of money involved grows, also resulting in greater impacts for the business if it is not managed well. As a simple test, a sign of a healthy cash flow is always having cash available to pay all wages and bills on time. When businesses cannot do this, they can face a “cash crisis”. In this situation they can have trouble accessing supplies and potentially disrupt their operations and ability to generate revenue.
When do you want to get paid?
The simplest solution can often be a review of your terms!
If you’re having trouble with cash flow, check to see how well your customer terms and supplier terms are balanced. If your average creditor payables is 24 days and your average debtor receivables is 47 days, that’s 23 days that you have to float, which means you have to go out and get working capital – bank overdraft or tip in more of your own funds (if available???) You’ll want to look at the terms you’re offering to customers and evaluate if they work for you and how your customers are performing to those terms. With suppliers, you want to see how their terms stack up against others in your marketplace. You might also discover that you’re missing out on a discount if you were to pay even earlier. That might run counter to your goal of shortening that receivables-payables gap, but the money involved might be worth it.
Enforce your payment terms!
In order to shorten your debtor receivables period, you’ll need to have a good collection system in place.
You will need to review:-
- How long is it taking to get paid?
- What is your collections activity?
- Are you getting the right level of contact with your customers?
- Are you identifying disputes fast enough?
- When you identify disputes, what is your policy for getting them resolved?
Keep in mind that the level of your customer service also can impact on how quickly you get paid as well!
If you buy something and something is wrong with the invoice, and it takes you a long time to resolve it, it makes you have a little angst and your customer seem more difficult to work with.
Enforcing payment discipline should also be part of your creditor payables operations too. A sloppy processes in this area could mean that you might miss out on discounts and habitually paying late could hurt you the next time a contract comes up for renewal. By paying on time, you can build a relationship and negotiate for future discounts or payment terms better suited to your business cycle.
Why not automate your debtor receivables process?
As Certified Xero Advisers we can assist you with a Xero add-on program that links to Xero to make collecting your debts simple and efficient . It works by connecting to Xero and extracting data from all Sales Invoices awaiting payment.
You can then set the program to automatically chase your outstanding debts in the form of customisable email reminders sent to your customer at a range of different stages once the invoice due date has passed.
The email reminders look very professional, and can also be sent manually to certain customers in an ad-hoc fashion if you require.
The program is very easy to use, and once integrated properly into your internal processes, saves you hours of phone calls, emails, letter writing, and liaising with debt collection agencies.
Because time is your greatest resource. And your time is better spent growing your business rather than chasing your customers for money.
We can automate the follow up of your accounts receivable, getting you paid while you’re off doing the work you love.
Many users see cash come in immediately and within 30 days on average reduce their aged receivables by 43%!
Get setup in minutes. Get cash tomorrow!
Need help getting your business’ cash flow forecast up and running, then give us a call on (03) 5561 2643 or email us at email@example.com.