For any business, having steady and predictable access to cash is vital. Every successful business has its own unique features, yet effective cash flow management is a common thread.

9 out of 10 SMEs report that problems with cash flow have prevented them from generating more revenue and top reasons include suppliers reducing payment times, bad debts and customers paying late. The main impacts this causes are the inability to take on new work, difficulty making payments and unsold inventory.

Our top tips for overcoming common hurdles and surviving cash flow challenges are below;


1. Ensure you know your customers

Complete credit checks on new customers so you can research the business and make informed decisions about whether you’re prepared to extend credit and how much.  A trade reference can provide you with valuable insights about how the business works, whether they pay on time or if there have been previous disputes or challenges.


2. Ensure you have a strong paper trail in place

Some of the most common reasons customers give for non-payment is not having received the goods or work was not in line with what was ordered.  Protect yourself in the event of disputes by obtaining written purchase orders or providing written confirmation of orders received.  Obtain signed proof of delivery or confirmation work is complete and ensure any requests to vary an order are in writing.


3. Invoice on time and ensure you have clear payment terms

Being punctual with your invoices is essential. Invoice as soon as possible after work has been completed or goods delivered so your payment terms kick in straight away.

Make sure your invoice is set out clearly and is easy to understand with full details of the order and charges as well as payment terms and ways to pay. Also ensure you’re sending the invoice to the person/department who will be paying it, so it doesn’t go astray.


4. Proactively deal with late payers

If a customer fails to pay you on time it can have a major impact. You’re not only missing out on anticipated revenue, but you’ve already worn the cost of the time, wages and other expenses invested in the work you’ve completed.

Send month end statements and ensure you follow up late payers immediately. Those who shout loudest get paid first, and those who don’t follow up are often left to last. Have an action plan for late payers and review if you’re prepared to continue to supply when you are not getting paid. You could also consider adding a penalty fee for late payment of invoices.


5. Review your credit terms

Whilst you can’t always negotiate credit terms with larger customers, it’s worthwhile negotiating shorter credit terms where you are able. The difference between being paid in 14 days, 30 days, 45 or 60 days has a big impact on cash flow. Work out your weekly costs or prepare a cash flow forecast and calculate the impact shorter payment terms would have on your cash flow.


6. Maintain strong relationships with customers and suppliers

If you’re struggling to make payments, you should let your supplier know as soon as possible. Having that open communication is fantastic for supporting business relationships. Call rather than email – it gives the opportunity to discuss your service and business and get valuable feedback.

Similarly, encourage your own customers to do the same.

Rather than speaking directly with the accounts department, get in touch with your representative at the customer or supplier organisation.


7. Stay on top of your tax position

Typically, tax obligations can be the first to be stretched when cash flow is tight. Be proactive, discuss with your trusted adviser or accountant how to best manage your statutory obligations. If you are proactive, you can sometimes negotiate payment arrangements with the ATO or Inland Revenue.


8. Regularly review your funding arrangements

You need to ensure you have sufficient working capital to meet your needs and that any arrangements are doing what they should to support your business.

Rapid sales growth can impact cash flow as businesses seek more staff to keep up with demand. This investment requires additional working capital. If you’re not undertaking regular reviews, you may find yourself with a cash flow shortage and unable to meet supplier payments or other obligations.

In addition, a static funding arrangement could mean your cash flow is restricted and you’re unable to take advantage of new opportunities.

Don’t go it alone, reach out to an experienced adviser to understand the breadth of solutions in market and get advice for your needs.


9. Produce regular cash flows and create a budget

Cash flow forecasting and budgeting is essential in allowing you to identify periods when spending is high and cash is likely to become scarce so you can address it and avoid it occurring. You should also regularly review that forecast because things change and you can make plans to counter future cash flow shortages. Use our cash flow forecasting tool to help you.