7 Cash Flow Basics You Need to Get Right

You're flat out building a successful business, so you drop the ball on managing your cash flow. It's not unusual. In fact, it's understandable why you might worry more about sales and less about tracking money coming in and going out.

According to Xero Small Business Insights research, only half of Australian small businesses (50.12%) were cash flow positive in January 2019. For these strong cash flow companies, there is the benefit of being able to say yes to growth opportunities. They can invest in new products, take on large orders, negotiate better financing terms, pick up inventory at deep discounts, pay down debt – and the list goes on.

So how can you join this positive cash flow club? By taking these back-to-basic steps to gain control of your incomings and outgoings.

Cash flow tip!

Don’t pay invoices before they’re due unless an early settlement discount is available.

1. Invoice immediately

   The quicker you invoice, the faster you’ll get paid. Block out regularly scheduled time for invoicing as part of your work processes. Depending on your business, look to invoice daily or as soon as a job is wrapped up. Where possible, ask for a deposit up-front or part-payments throughout the project.

2. Sync supplier and customer payment terms

   How do the payment terms for your suppliers compare to the payment terms for your customers? Do both offer 30 days? You don’t want to be in the position where your suppliers require that you pay in 30 days, yet you give your customers 45 days to pay.

3. Know your stock levels

   Be on top of what’s selling quickly and what’s not. Good stock control involves reviewing your stock, line by line. Excess stock equals money sitting on a shelf. Predicting the number of products you need for different periods is vital; taking into account seasonal fluctuations and customer buying habits.  

4. Chase up debtors

   Are your clients treating you like a bank that offers interest-free loans? Approaching late payers with this mindset can help you take the emotion out of the miserable job of chasing up debtors. Develop a step-by-step timeline for communicating with customers about upcoming and outstanding payments. The earlier the intervention, the better.

   Useful reading: This Is the One Question You Need to Ask Every Time A Customer Pays You Late

5. Give customers payment choice

   Don’t give customers a reason to pay late by making it hard for them to pay. Offer as many choices as your business can accommodate, from credit cards to digital wallet and mobile payment solutions.

6. Track your cash

   Always know your cash position and critical cash flow metrics. A firm grasp of your business financials will help you identify in advance when you’re likely to have extra cash available or when there’s a risk of a shortfall. Accounting cloud-based systems like Xero make it easy to get real-time visibility of your money coming in and going out, with the tracking and reporting tools you need to forecast your cash flow for planning purposes. 

7. Use credit insight reports

   Your customers present a real risk to your cash flow. The more you know about their financial health and credit conduct, the greater your ability to protect your business.

​With an Equifax SwiftCheck credit report, you can get an accurate picture of a company or individual before they become your customer. For example, you can find out the credit score of a business and whether they consistently pay invoices and bills late.

By integrating credit reviews into your business process, you can be alerted to any changes in a customer’s financial health. Credit reporting also helps you manage customers seen as high risk so you can take action on getting paid before it’s too late.