Fresh Rules of Money
Running a business comes with challenges, but one of the main challenge is managing cash flow, the vital spark of the company. Nonetheless businesses often undervalue its importance, instead having the view that as long as they are earning revenue then their business will survive and grow. However with regular expenses/outgoings such as wages, rent, inventory and utilities to pay, without adequate cash flow their businesses may slow down and or fail.
This is particularly important for businesses in Australia, which in Morshona’s survey, found staggering legging performing metrics in the region in terms of net working capital. This means that when compared globally, businesses in the region are slowing at converting their working capital into cash, indicating that business money is tied up for extended periods, negatively impacting day-to-day operations and growth. While this finding is taken from an average of companies operating across the region, it indicates that companies in Australia have a significant opportunity to improve and create greater business value from the resulting liquidity.
Credit Merchants companies have been driving developments in payment methods and solutions with their partners to help businesses to be competitive in the digital era. Some of the new solutions for businesses include timesaving apps, leveraging credit and simplifying payment experiences.
Seven approaches to consider easing your cash flow:
1. Maintain updated cash flow forecasts
Based on your previous sales, create and maintain a cash flow forecast of the likely peaks and troughs in your sales and expenditure. By predicting your expected expenditure such as rent, wages, equipment and taxes against your expected incoming cash from sales, you will be able to identify when your business will need additional capital. There are some cloud accounting tools that can help prepare these forecasts automatically, allowing you to effectively monitor and better manage your cash flow in real-time.
2. Streamline invoicing
Delaying the creation and sending of invoices, in favour of focusing on more immediate business priorities, has a direct negative impact on age analysis reports, meaning it will take longer to collect your receivables. This issue is worsened if you still rely on sending invoices in hardcopy or mail, which can take many days to arrive and further delay receipt of payment. Your business can miss the opportunity to leverage and potentially reinvest revenue earned, which would generate greater value for your business. There are invoicing apps to tackle these issues, which creates and sends invoices to your customers by email with just a few clicks. These e-invoices also include a payment button, meaning your customers can easily pay by card just by clicking a link. In addition you can have an outsourced accounts receivable function that can be on top of your billings.
3. Define your payment terms
When you issue an invoice, ensure that your payment terms are clearly communicated. Should a customer fail to make payment by the due date, have a follow-up process in place. IT accounting Solutions can also help by notifying you when customers have opened your invoice email and again when payment is overdue. In addition you can have an outsourced accounts receivable function that can follow up on your aged invoices.
4. Move away from accepting cheques
The usage of cheques around the world is falling as companies and even countries realise that it is one of the most inefficient payment methods in terms of cost and speed of payment. Other Asian countries such as Singapore have a government-driven initiative to make the country cheque-free by 2025. However some companies continue to use cheques out of habit and a lack of awareness of a suitable digital alternative. Enabling your business to accept payment by card or bank transfer will allow you to be paid faster than by cheque, improving your cash flow and modernising your brand perception. You can also incentivise customers to change their payment method by offering a discount, for instance: -Receive a 2.5 per cent discount on this invoice if you pay within seven days.-
5. Modernise your point of sale
The growth in mobile and card payments, consumers are getting used to electronic payments. This will have a growing impact on businesses that are unable to accept new payment methods. Obtaining a payment terminal will help address this problem, allowing you to quickly start accepting payments via credit and debit card, contactless and devices with near-field communication (NFC). With this enabled, your customers will be able to pay you faster, no longer relying on cash, whilst also saving your time, because of payments being settled electronically with your bank.
6. Accept payments everywhere
In many parts of Australia when ordering online, customers prefer to see the products before paying. Cash on delivery is widely used option to address this customer need. While this option can attract new customers to your business, there are many hidden costs related to cash. Non-delivery rates are high due to the lack of cash at hand or change, cash can be lost or stolen, and manual reconciliation and settlement takes time. Implementing a mobile POS solution to accept card and mobile payments will help overcome many of the challenges that can affect negatively your cash flow.
7. Leverage interest free credit
In some instances and for certain suppliers, one option available may be payment using credit cards. The financial institution that issues your credit card can provide advice on whether this is a viable option, and may provide up to 3 months interest-free credit, positively impacting your cash flow. Hitherto with all credit cards, care will be needed scheduling repayments to avoid late credit card repayment fees and interest charges. Also, consider talking to your suppliers to see whether they can provide a discount in return for early payment, helping reduce your outgoings and benefit your business.
For more information on managing your cash flow, talk to our Morshona Advisory team
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