Cashflow tips to help SME owners avoid a New Year headache


While the lead-up to Christmas can be a frantic period for many business owners, in the back of their minds they are probably giving a few anxious thoughts to the looming end-of-February BAS deadline and how they’ll meet their obligations and continue to fund growth.

Cashflow at this time of year is a real issue for SMEs. If a business is having a tough time with cashflow, it can be tempting to run up ATO debt, but there are smarter cashflow solutions available to them, that won’t negatively impact on their credit rating.

If a business owner has had a great year, they may have outgrown their traditional bank facilities and be facing cashflow problems that send them looking for new ways to fund growth.

Here are six tips to strengthen cashflow

  1. Speed up your collections cycle. Debtor days (the average time customers take to pay invoices) can have a dramatic impact on cashflow. Speeding up your payments cycle might be as simple as improving paperwork – make sure invoices show all relevant information required for the customer to pay, send timely reminders and put in place a disciplined reminder call program. As an example of its impact, if a business turning over $10 million reduced its debtor days from 60 to 55 days, it would achieve a cash influx of more than $135,000.
  2. Take deposits on large orders so that you don’t have to outlay for large production costs up front.
  3. Monitor stock closely – too much floor stock can unnecessarily deplete your cash reserves. If stock is in danger of becoming obsolete, consider selling it off at a discount to turn it in to cash.
  4. Look at all working capital options, including invoice and trade finance. With invoice finance, an advance is offered on money that is already owed to the business. Also known as debtor finance, it suits businesses that sell to other businesses on standard trade credit terms. As one example, it is useful for labour intensive businesses where wages have to be met well ahead of payment receipts. Trade finance is another working capital tool – available to importers, it bridges the gap between when you pay your suppliers and when you get paid by your customers.
  5. Negotiate with your suppliers for longer payment terms so you keep cash in your business.
  6. Look at whether it is cost-effective to re-structure your borrowings – you can remove the reliance on real estate security by taking out facilities such as invoice finance, either as stand-alone funding or in conjunction with your existing overdraft.

The ability to access working capital and manage cashflow is crucial to SME success. Growing businesses often find their access to cash tightens, as they need to take on more staff and bring in more stock while still having to wait 30 to 60 days to get paid for goods or services already delivered.

There’s never been more options outside of the traditional bank loan for business owners to fund their enterprises – from invoice finance to online funding platforms and P2P lending, it’s just up to SMEs to find the solution that works best for them.

With invoice finance, SMEs are able to access the money they are owed much sooner than if they had to wait for customers to pay them. They are then able to use the cash injection to keep the business on track, and to keep growing.

Peter Langham, CEO, Scottish Pacific