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Stats released by Rodgers Reidy make note that the Covid stimulus measures introduced have had a drastic effect on the number of insolvency and winding up procedures. For the month of October 2020 compared to October 2019, there has been a significant reduction in the number of reported events in particular Winding Up Applications and Court Liquidations.

Winding up Applications are down by 94%.

Court Liquidations are down 93%.

Voluntary Administrations are down 64%.

Voluntary Liquidations are down 44%.

It can be safely assumed that 2021 will be a year when this trend will be corrected. Government stimuluses will be reduced or cease all together and the ATO along with a plethora of other mainstream creditors will be looking to be made whole. Cash flow will be king during this time and the ability to trade and pay whilst avoiding delays may be the difference in becoming a stat in the insolvency world or a survivor.

According to the ASIC, more than 8,000 businesses became insolvent in 2018/19, and 51% of those businesses reported inadequate cash flow as the key cause of failure.

We will not always have job keeper rent & loan deferrals, and other governments initiated top ups and bailouts to come to our aid. Cash flow issues can creep up very quickly and without adequate working capital, a business can find it very difficult to stay afloat. During these uncertain times, it is more important than ever to get a handle on your cash flow.

Don’t let insufficient cash flow be the key reason for your business failing, look into debtor financing, and explore the cash flow management tips below to get your business on the right track.

Identifying and understanding cash flow problems

There are multiple factors to consider when assessing your cash flow as it depends on the industry you are in, your business life cycle, your payment terms, your sales cycle, your margins, and more.

The first step in understanding and identifying whether you have a cash flow problem, is to focus on the important areas such as sales, pricing and margins, expenses, inventory and obsolete equipment, accounts payable, and accounts receivable.

Declining sales

Sales can quickly decline due to a pandemic, a new competitor, or a recession. Whatever the reason, cash flow issues will eventually follow.

Some strategies to improve sales are:

Review all aspects of the sales cycle such as prospecting, qualifying, sales pitch, objection handling, closing, and following up for referral opportunities.

Adopting new sales tools and technology such as CRM (Customer Relationship Management) to track and measure performance.

Create an effective sales training program when onboarding new sales staff

Using sales metrics and set targets to motivate better performance

Having regular sales meetings to discuss what can be improved

Pricing and margin

Your margins should allow for rising costs without affecting your profits too severely. Low profits can also indicate that there are cash flow issues looming. As a starting point, you can look to reassess your pricing strategy and improve your productivity at the same time. Offering value that correlates to the pricing increase could translate to a competitive advantage and improve your cash flow.

Go back to basics and identify what your customers really need and how your products or services can help solve them.

Expenses

You should look to reduce your expenses when there are signs of cash flow issues. It is important to consider what benefits are derived from each expense and micromanage how that cost is being utilised.

Categorizing your expenses and noting the percentage on each category is a great way to determine what you are spending your money on. It will help you keep track of whether the spending allocation makes sense and pick up anything that stands out.

Inventory and obsolete equipment

Having working capital tied up in excess stock and obsolete equipment can put a major strain on your business cash flow.

Consistently reviewing your stock level, what you are ordering, and your ordering cycles can help to reduce any excess.

Consider the extra expenses of holding excess stock and obsolete equipment, and decide whether the cash you can get for disposing excess stock and obsolete equipment quickly can be better utilized elsewhere.

Accounts payable and accounts receivable

Optimising accounts payable can help improve working capital. Some key steps to optimising your accounts payable are:

Identify key suppliers/vendors and prioritise to negotiate favourable terms that will help boost working capital.

Streamlining the invoicing and payment process to ensure invoices are paid consistently, according to terms, and on time but not early.

Having up to date and accurate data gives visibility on how much, how often, and when you pay each supplier to better manage your cash flow.

Your accounts receivable should be considered as one of the most important assets as it is the most liquid behind cash. If most of your business is done on accounts then this process needs to be prioritized, as it will determine what will actually sit in your bank account.

Some practices you can put in place to optimise your accounts receivable are:

Regularly reviewing your customer’s credit limit will ensure you are not putting all your eggs in one basket, and if your customer’s business is in jeopardy you won’t go down with them.

Pay close attention to your largest customer’s payment trends, their credit limit, and whether they are abiding by your payment terms.

Ensure you are invoicing promptly, accurately, and following up on payments in a timely manner.

The other way to enhance your accounts receivable procedures is to look into debtor financing.

Using debtor financing to fast track access to cash

BCashflow Positive debtor financing can work in conjunction with your accounts receivable process while helping to cover the gap of late payments. Instead of waiting up to 90 days to get paid, we can convert your sales invoices into cash in as quick as 4 hours.

Simply invoice your clients and send us a copy. We will advance you with up to 90% of the invoice value and credit the remaining 10% when your client pays us, less any accrued fees.

We can also help to monitor your customer’s accounts and help to follow up on payments, so you can stay on top of your cash flow.

With faster access to cash, you can take advantage of early payment discounts, pay wages on time, and pivot your activities toward more revenue generating activities.

BCashflow Positive has been helping Australian businesses improve their cash flow for over 30 years. Contact us today to find out how you can improve your cash flow while having us as an extension to your accounts team to help optimise your accounts receivable process.