We love reading the blogs at MYOB.com/blogs, and we thought this was worth sharing… Merry Christmas
The festive season can be a challenging time of year, especially when it comes to managing cash flow. Being a key trading period, demand for cash is high as staff go on annual leave and receivables can also be difficult to collect. On top of it, there is the traditional slow-down in sales during the first few months of the new year, plus the next quarterly BAS is due in late February. This is a period of heightened risk, which if not properly managed, can result in cash flow issues when the business resumes trading next year. Below are some strategies that businesses can use to improve cash flow over the next few months and throughout the year.
1. Don’t sit on a job once done
Issue invoices promptly, with the correct amount and include a detailed description of the goods and services provided. Also ensure that payment terms are clearly stated.
2. Warn customers of late payment
Send out statements monthly and use bright coloured paper to let customers know how much time they have to pay.
3. Make paying ridiculously easy
Make sure it is super easy for customers to pay you. Offer them a range of payment options such as BPAY, credit card and direct credit.
4. Use a mobile payment system
Have a facility that allows customers to pay on the go instead of 30, 60 or 90 days. There are great app’s available these day allowing business to take card payments using their smartphones.
5. Don’t be too nice
If possible, don’t extend further credit to customers who are slow payers or have a history of not paying at all.
6. Know which cows to milk
Understand what the key cash flow drivers are for your business. For example, if your average creditor payments are 30 days, but average receivables are 45 days, that’s 15 days you have to make up for and require funding to stay afloat.
7. Establish a policy for late payers
Track outstanding accounts receivable and have a consistent policy for chasing up slow paying customers. For example if a 30 day account is not paid at 35 days, phone and ask for payment immediately.
8. Negotiate a better deal with creditors
Take full advantage of creditor payment terms and negotiate better terms (e.g. discounts for early payment).
9. Track your inventory
Keep a close eye on inventories and ensure that too much cash is not tied up in slow moving or non-profitable stock.
10. Hold off the big ticket items
Review outgoings and either eliminate or delay expenditure until the new year, if possible. Only spend on the ones you have budgeted for this year and resist the urge to add on more things to your expenditure.
11. Forecast your cash flow
Prepare and update cash flow forecasts on a rolling 12 month period. Remember to include GST payments, income tax and loan payments. Accountants can provide valuable input to ensure business owners are on the right track.
12. Forecast your funding
Consider if working capital finance is required to provide additional cash flow support.
If you need more assistance or business building tips, visit myob.com.au/businesstips (http://myob.com.au/myob/business/business-tips-cashflow-1402778152309)
Source: Joe Kaleb (MYOB), 8 Dec 2014, http://myob.com.au/blog/12-tips-to-improve-cash-flow-this-christmas-season/ viewed 19/12/14.