All businesses from time to time have cash flow issues. It may be heartening to know when this happens, you’re not alone.
Xero has published their Small Business Insights (https://www.xero.com/small-business-insights) which is based on the collective data of all small businesses using their software. Xero is now the most popular software for small businesses in Australia and has over $1 million subscribers globally.
An interesting insight was that only 53.7% of small businesses were cash flow positive in August 2017. That means that 46.3% of businesses had more cash outflows than they had money coming in. There are normally two reactions to this.
- Shock or surprise. ‘Can it be that almost half of Australian Businesses are cashflow negative?’
- Relief – ‘I am not alone. There are other business owners that feel like I do’
Cashflow is a continual struggle for businesses. It is not surprising that January and February are the worst months and only 47% of businesses are cashflow positive.
The insights do show that invoice terms are slowly improving with Invoices with 30 day terms settle in an average of 34 days. Big business is starting to change their mindset about paying small business. In August, over 40 large companies, as well as several city councils honouring a pledge to pay small suppliers within 30 days. Coles and Woolworths supermarkets have committed to 14 days.* (as per Xero insights) Even so, businesses that do not take action on their debtors will be left behind.
Improving cashflow has to start well before your customer has a debt with you. Here are a few tips that can assist you:
- Introduce new revenue lines – creating a mix of income streams reduces risk. Can you introduce a product or service that has a monthly payment via direct debit?
- Increase average spend per customer
- Change your contract/engagement terms – quote up front, ask for payment up front or reduce payment terms.
- Enforce credit terms – don’t be afraid to stop service if a customer breaches their terms. Also have a debt collection process if customers are overdue. Use the automated debtor reminder features in your software (Xero is great for this).
- Review your aged debtors list every week. Ensure it is correct and get on the phone and call your customers. You can turn this into a service experience, by asking your customer how they found your service.
- Invoice regularly – don’t delay in getting your invoices out. Try and invoice as soon as the job is finished. If you are out on the field, there are many add ons or software features you can use to give the invoice while you are standing beside your customer.
- Make it easy to pay – offer a variety of payment types or agree on payment before you provide the service or goods.
- If you are in an industry that is known to be high risk for debt collection – check out your customer’s credit reputation. Xero has a free feature that will show you your customer’s credit rating when you set them up as a customer. If their rating is poor – implement terms that will ensure you are paid.
We can help you implement these in your business. Talk to us today about how we can help you by calling 07 5413 9300.