Cash flow named as biggest business challenge

Most Australian business owners understand the challenges of maintaining a regular cash flow. When clients lag behind on payments, the financial stress can lead to some small to medium enterprises (SMEs) having tocash flow named as biggest business challenge close their doors for good.

Unfortunately, this could soon become a reality for many SMEs across Australia as cash flow cycles begin to slow. Recent industry research has shown payment times have lost steam this past quarter, increasing to the longest average period since this time in 2011.

The average business-to-business payment was made in 56 days during the first three months of this year. This is three days slower than the last quarter of 2013, suggesting many businesses are experiencing an increased financial strain.

The problems with cash flow

With cash flow cycles slowing down, SME owners are forecasting big issues for their enterprise over the next three years, according to the latest Trade Payments Analysis from Dun & Bradstreet (D&B). More than a quarter of Australian businesses (26 per cent) believe cash flow problems will be the factor most likely to create challenges for their organisation between now and 2017.

Cash flow has been identified as a major business issue ahead of wages, interest rates, fuel prices and the performance of the official Australian dollar.

“The steep rise in the number of days taken to settle accounts is an unwelcome development given some other more positive readings we’ve been seeing in the economy,” D&B Head of Group Development Adam Siddique said in a June 18 statement.

“While businesses are upbeat about increasing their sales, these latest findings suggest they are experiencing difficulty managing their finances and paying their expenses on time.”

Part of these rising cash flow management issues may have been influenced by an increasing number of insolvencies and related financial woes experienced by customers and clients. D&B’s survey found that one-third of businesses (34 per cent) had a supplier or consumer become insolvent or otherwise unable to pay their bills within the last year.

Often, when clients and customers fail to pay their invoices, this can significantly impact on the receiver’s ability to meet financial obligations. When SMEs experience missed payments, the financial burden can lead to certain expenses being avoided or dropped, or businesses being unable to pay their own invoices.

“When bills are paid late it interrupts the cash flow that businesses need to cover their own operating costs, which in turn delays how quickly they can pay their suppliers – and so the cycle continues,” he added.

Addressing cash flow issues

If your business has started to struggle due to late or missed payments, there are some measures you can put in place to improve cash flow management within your organisation.

The most effective step you can take is to sign your clients and customers up for paperless direct debits, instead of relying on each individual to take the required steps to make payments. Once you have a streamlined, recurring payment method integrated in your company, clients can access your services without the burden of receiving and reviewing invoices and bills each month.

Perhaps the biggest benefit of this payment model is the guarantee you will receive ongoing and reliable recurring revenue. This mitigates the risk of late payments impacting on your ability to pay for business expenses.

In order to bolster the collection of direct debit payments, you may need to invest in a recurring revenue software solution that caters to a range of industry and consumer requirements. Once this tool is integrated in your business, cash flow challenges can soon become an issue of the past.