Australian small and medium-sized businesses (‘SMEs’) are owed $26 billion at any one time because of unpaid invoices. For any SME, especially within industries like Recruitment, Transportation and Manufacturing, this period of uncertainty can seriously undermine a company’s cash flow. Research conducted by Bibby Financial Services in March shows that 40% of SMEs are finding it more difficult to manage their cash flow than 12 months ago.
The result of unpaid or late invoice payments can be toxic for a company’s survival. Fortunately, there are ways to combat the “cash-flow crunch.”
- Improve Internal Accounts Receivables (‘AR’) Processing
One way to encourage timely payment is to bill clients as soon as services are completed or products delivered; don’t wait until the end of the month to issue the invoices! If there is a delay in raising invoices, the chances of getting paid on time, especially in the event of dispute, is highly unlikely. Some companies choose to incentivize their clients by offering early-settlement discounts; others attempt to extend their own credit terms with Suppliers to ease cash flow constraints. Sometimes, a company will simply stop trading with customers’ altogether or impose a late payment penalty against those who consistently fail to pay on time. By improving internal AR processes, a company can also improve cash flow and even enhance overall customer relations.
When trying to operate and grow a business, expending time and energy to manage credit-related tasks can be stressful. Choosing to outsource these responsibilities to trained specialists is another viable option.
- Secure Alternative Finance.
Debtor Finance – also known as invoice finance, cash flow finance, and factoring – is a facility that provides funding against a company’s AR via a third-party Financer. Most facilities will advance around 80-85% of the invoice amount immediately (subject to approval), with the balance being paid upon receipt and net of any fees payable (service and interest). Debtor Finance is a practical and growing finance solution. Many SMEs are using this kind of facility more regularly to improve cash flow and assist with back-office functions such as raising invoices or statements. Some Debtor Finance facilities can also provide a robust credit and collections function (offered under a Full Service Factoring facility or a derivative thereof).
The benefits of this kind of financing are not just operational in nature. Having early access to working capital means a company can save costs by not using core staff for non-core activities (such as chasing outstanding invoices) and by using the capital to negotiate early settlement discounts with Suppliers (often overlooked), an SME can also increase trading margins.
Ultimately, when cash flow and back-office functions are in order, the business owner can focus on more important day-to-day matters such as increasing sales and expanding the business – this in itself is priceless! If you do choose to secure a Debtor Finance facility, then make sure your financial statements are in order because there will be the need for pre-funding Due Diligence (often a painless process and one that can sometimes have hidden benefits too).
If you have confidence in your customers, robust internal systems and collectable invoices, then this type of funding can be an excellent cash flow solution.
- Subsidize Operational Costs.
SMEs can sometimes struggle to keep up with the associated costs of exponential growth. Right now, the Australian Government is offering generous tax subsidies for SMEs engaged in Research and Development. The grant serves as a catalyst for growth by helping companies explore new and meaningful research and development strategies, whilst providing much needed capital to satisfy overhead costs in the form of a tax rebate. Government Grants are also available for Export Marketing and Development as well as Business Growth. With access to the right kind of assistance, securing a grant can be done free of any upfront costs. In essence, an SME has simply nothing to lose and everything to gain.
Now that you know how making simple improvements to internal processes, securing alternative finance options and obtaining Government Grant funding can help stem the issues relating to cash flow management…it’s time to take action!
Sydney Business Accounting (‘SBA’) has a number of specialist service partners that have years of experience in both Debtor Finance and successfully securing Government Grant funding. If we have the solutions, all we need from you is a few moments of your time to better understand your business.
Contact SBA today and get a FREE one-hour, advice-filled meeting. Click Here To Book A Free Meeting and let’s get started.