How you can protect your company’s cash flow

5 min read

Cash flow is one of the most influential business factors, particularly for SMEs. Without a stable and sustainable income, organisations can struggle to stay afloat and may ultimately end up closing their Cash flow doors for good.

According to Dun & Bradstreet's Trade Payments Analysis, Australian business owners believe cash flow to be the issue that will most likely impact on their operations. This is ahead of financial burdens such as rising fuel prices, unstable interest rates and the performance of the dollar.

As a result, it is vital that business owners and financial managers take all precautions to protect their revenue, through strategic cash flow management solutions.

Fortunately, there are a range of simple solutions to help sustain positive cash flow outcomes. If you've been struggling to maintain sustainable sources of revenue, here are four tips that may help:

Understand your clients

For small business owners, it can be tempting to take on every potential customer in order to boost income streams. Many managers operate under the belief that client quantity is the key to increased revenue.

However, taking on the wrong customer can be more damaging to your potential revenue than neglecting to add new sources of income. This is because a client who uses your services and then fails to pay not only represents a missed income opportunity, but is also a significant drain on resources.

Depending on the risk involved, some businesses may find it beneficial to undertake credit checks or investigations on each customer before signing them up.

This can help reduce exposure to bad debtors that can seriously impact the business's ability to pay bills and expenses. Fortunately, simple investigations can be undertaken by various professional services, enabling you to decide whether to work with a new client, amend standard payment terms or refuse to take on a customer.

Know the market

Understanding how the industry and market is operating is a key factor in ensuring you have adequate cash flow management strategies in place.

For instance, if your consumer reports and business analytics show that demand and activity are affected by official cash rate decisions, you can begin to prepare your company for adverse decisions from the Reserve Bank of Australia. If the cash rate was then pushed too high or low, your business could easily weather the storm by utilising the procedures you already had in place.

This will minimise the risk of business interruptions that may impact on your ability to fulfill client demands or pay ongoing expenses. It is therefore crucial to keep a close eye on how the market is performing, to ensure you can respond to potential cash flow decreases quickly and efficiently.

Encourage early payments

Waiting on revenue can be a challenging time for small businesses, as your own unpaid bills begin to stack up. Fortunately, encouraging early or on time invoice payments is not a difficult task. For many businesses, a recurring revenue model can significantly increase cash flow, revenue, and customer loyalty. We've covered recurring revenue in several posts here, here and here.

If you find your customers are waiting until after the due date to pay their invoices, consider implementing an automated payments solution. This encourages faster payment times due to the reduction of actions required by the individual.

Further options could be to offer discounts for early responses, or penalties once invoice periods have passed. This should act as an incentive for customers to pay their debts sooner rather than later in order to avoid increasing costs.

Monitor your cash flow

Once you have a cash flow management strategy in place, it is important to regularly check up on it. This will ensure that you are able to quickly respond to increasing times between payments or other adverse trends.

Fortunately, an investment in an automated payments solution can help with this process. This allows you access to a range of data-related capabilities, including the ability to collect and analyse customer data.

Get in contact with a professional payment solutions provider for more information on effective cash management solutions and direct debit investments.