Most companies stall or fail not because of bad product but because of bad cash flow. If you are among the SMEs that leave invoices outstanding, then you are a part of a $76 billion shortfall that sees half of companies completely fail before they reach year 4 of operations. 40% of SMEs leave an average of $38,000 on the table over 11 outstanding invoices. Can you afford $38,000 missing from your coffers?
Here are some SME cash flow tips that you can put to use immediately to keep your business in order.
Extend Your Payables
Money has two values: an intrinsic value and a time value. The time value is easiest to define through money that you are chasing. If your light bill (a payable) are due today, and your invoices aren’t getting paid until next month, well, say goodbye to the lights. The money that you don’t have has a time value that you are not taking advantage of — your debtor is holding that value. However, the light company is enforcing the time value of its money — if you don’t pay out now, you pay the price.
Extend all your payables as far out as possible to keep your money in your hands as long as possible. Even if you only get another 30 days on a few thousand dollars, you can gain interest for than 30 days on that money and shore up your cash flow.
Set Cash Flow Targets
It is best to set your cash flow targets before the beginning of the fiscal year. However, you may be reading this at some other point during the year. Take the time to set goals now.
Setting goals means that you extend out payables as far as possible, but you draw in client payment terms as close as you can. You also let it be known publicly what penalties you will impose for late payments. If you are firm with your hand, people will get the message and pay you on time.
Consider Monetary Rates
Interest rates and exchange rates are incredibly important if you are moving money in and out of banks or between international jurisdictions. Those tenths of a percentage point eventually add up to real money, so do not take them for granted. Make banks compete for your business, and do not overlook even the slightest improvement that you are able to negotiate.
Research Clients
Once you have a solid client base, it is time to become more exclusive with your credit and selling power. If you have the leverage to research out and target better clients, why not go for them? People who pay on time, buy in bulk, and give you more leeway in your production schedule will only help your business. At the same time, getting rid of bad clients who give you more trouble than they are worth will save you more resources than you lose by firing them.
Begin to quantify the intangible aspects of your business, most importantly your time and the time value of your money. Do not extend credit to a new customer unless you are completely sure that you are going to be paid on time and in full. Credit is a reward for great business, not a customer acquisition strategy or a loss leader. Do not be afraid to check the credit history of new customers or bad customers with a history of paying late, even if this change in your policy strikes them as a surprise!
The Advantage of a Professional Invoice Factoring Company
Preserving your cash flow is a professional endeavour that usually requires an objective, dedicated third-party partner. Chasing down your cash is a full-time job, and you already have full-time work — running your business. Consider an invoice financing partner to keep your business moving smoothly, maintain control over your customer relationships, and focus your in-house talent on your highest value core competencies.
If you’d like to find out more about invoice financing, you can read about invoice financing vs invoice factoring.
Who is OptiPay?
OptiPay, one of Australia’s leading business finance providers, has been dedicated to helping small business owners solve cash flow challenges for over a decade and has provided $1.5 billion in business funding to more than 500 Australian businesses. OptiPay specialises in modern financing solutions such as invoice factoring, invoice finance, debtor finance, and lines of credit. OptiPay’s mission is to support business growth providing liquidity in as little as 24 hours, ensuring they have access to tomorrow’s cash flow today. This rapid access to funds helps businesses maintain smooth operations and seize growth opportunities without the stress of cash flow constraints. At OptiPay, we believe that healthy cash flow is the lifeblood of any successful business. Our commitment to helping businesses overcome financial hurdles and achieve their growth ambitions has solidified our reputation as a trusted partner in the business finance sector. Whether you are looking to stabilise your cash flow, expand your operations, or navigate financial challenges, OptiPay is here to support your journey with innovative and efficient financing solutions.
