The latest Trade Payments Analysis from Dun & Bradstreet shows businesses are waiting on average almost 45 days for payment.
Slow payment not only impacts on your ability to pay your suppliers on time, it also reduces your ability to grow the business and increases your likelihood of insolvency.
Business owners can take active steps, like improving budgeting and cash flow management skills, to minimise their insolvency risk. There’s no profit in a sale unless you get paid, and that means getting paid in a timely manner so that you can maintain an active business cash flow.
Here are some tips to help manage your business cash flow better.
1. SIMPLIFY YOUR INVOICING
Many small business owners are surprised at the difference it makes to payment rates when they make their invoices easy to pay. Don’t allow confusion to be an excuse for clients to not pay invoices.
Paperwork should clearly state all relevant details, including customer order reference, payment due date, your bank details, clear description of the goods or services provided and a name and number of who to contact with queries.
2. TIMELY INVOICING
It is also a good idea to issue the invoice as soon as a job is done or goods are despatched, rather than waiting until the end of the month. Every extra day you wait for payment equates to extra interest and it all adds up in ways that many small businesses cannot afford.
3. DUE DILIGENCE
SMEs should be running regular credit checks on potential and current customers, to minimise the risk of default.
4. ALTERNATIVE FINANCE OPTIONS
Start-up owners and existing SMEs should take a look at how they finance their business and whether it is the most effective way to help them thrive, not just survive.
Rather than relying on overdrafts, one option available to SME owners is factoring, or invoice finance. Facility limits are based on accounts receivable balances, so the amount of cash available grows in line with sales. What this means is a small business receives ongoing access to the funds it needs to complete the next order, without being forced to wait 30 days or more for customers’ payments.
If you have any questions regarding helping you manage your cash flow and minimise your insolvency risk, call us, we are here to help you.