Do you often look at your creditor payments coming due on the 20th of the month and think '…how am I going to pay these on time?'
Do you look at your aged debtor's ledger and despair at how the same customers are behind again on their payments to you? The one's that always seem to live in the 90+ day column?! …and what about wages, or contractor payments? They still need paying, and generally weekly, yet you'll have to wait for next month before you get paid!
These are very normal experiences, and are just some of the common cashflow pressures that businesses face. Unless you are very lucky or very gifted, it is unlikely that you will ever eliminate these issues. However, the good news is, there are a number of things you can do to IMPROVE these cashflow problems. These are some of them:
Always invoice out ON TIME. The bulk of invoicing may occur at the end of the month. Don't delay until the first or second week of the following month. If you do, you run the risk of not getting paid until the 20th of the month following when your customer received the invoice.
Consider PROGRESS PAYMENTS. For contractors this should be discussed prior to starting a job. Juggling cashflow is very difficult when you have to pay some expenses weekly (like wages), yet you often must wait until the following month to get paid.
If you finish a job or contract in the middle of the month. INVOICE IT OUT IMMEDIATELY. Customers can't pay you if they haven't received your invoice.
SLOW PAYERS must be followed up as soon as they are behind, and consistently when/if they are behind.
CASH ON DELIVERY. If a customer has repeatedly abused the credit facility that you had given them, they should be placed on cash terms.
For retail type businesses, EXCESS STOCK ON HAND soaks up cash resources. This is a balancing act between having enough suitable stock on hand but not so much that you run short of cash.
Large items of plant, equipment, machinery or vehicles purchased with YOUR OWN CASH RESOURCES will also place more pressure on your cashflow. You should consider financing large purchases via a lease or hire purchase. This allows you to keep valuable cash within your business by spreading the expense of the purchase in to the future to match the income that will be generated from that asset.
There will inevitably be times of cashflow pressure when in business. Pre-arranging with your bank an EMERGENCY CREDIT FACILITY will allow you to always know you can meet your obligations during difficult times.
If you would like to discuss any of the items mentioned above please contact Paul at the Kerikeri office on (09) 4077142 or email firstname.lastname@example.org