The issues of wage underpayment, missing superannuation, late payments, and tax underpayment make headlines on a daily basis. This isn’t because businesses are out to get the best of those they interact with. Rather, it’s usually because, when businesses run into cash flow problems, they have to make decisions about what gets funded and what doesn’t to make sure the business can both survive and grow. Often, employees, suppliers, or even the government, are left holding the short straw.
Of course, these practices are ultimately unsustainable. Underpaid employees eventually discover that they aren’t receiving fair compensation, and either sue or simply leave. Similarly, suppliers who can’t count on reliable payment will eventually drop those clients in favour of more dependable customers, and the government will ultimately come to collect. In order to be successful, businesses need to ensure that they can always meet all their financial obligations, regardless of their current cash flow situation.
Great businesses are built on great employees
Businesses who underpay employees, or who fail to keep up with superannuation payments, won’t necessarily land in hot water right away, though they will, of course, face penalties if caught. Instead, they’ll gradually become less able to compete in their industries, even if they’re never directly caught or penalised in court.
Businesses who create poor payment conditions for workers, intentionally or not, will inevitably only retain employees who don’t have better options. Moreover, any employee who becomes aware of any financial wrongdoing on the part of their employers could sue their employer and severely damage their employer’s brand, making it more difficult to recruit qualified and experienced workers. Top quality talent, the employees that businesses, and their competitors, rely on to drive innovation and growth, will quickly move on to work for those very competitors in hopes of improving the conditions of their employment.
A business is only as good as its supply chain
The ASBFEO investigated the issue of late payments in Australia with the 2017 payment times inquiry, and both the government and the private sector have taken action on the issue since then. Average late payment times have fallen significantly, but mostly because the federal government now mandates more timely payment practices of itself and its contractors. Many businesses are still forced to wait well beyond their invoice’s due dates to receive payment from their larger clients.
Waiting to pay a client can seem like the only way to stretch a budget in the near term, but it comes with a few important downsides. Suppliers operate like any other business. They need the revenues from their previous work in order to fund their current operations. If those revenues are late, it can affect their ability to operate effectively. Suppliers will be forced to make do with less capital in the near term, affecting the quality of their work, or eventually forcing them out of business. This, in turn, will be reflected in the products or services of the late-paying business. In order to be successful, a business needs to protect and maintain its supply chain.
Getting cash flow under control
The solution to these problems is, of course, to simply ensure that your business’ payment obligations are always met on time, whether they’re to employees or other businesses. Invoice and supply chain finance are tools designed to help businesses manage cash flow gaps just like these.
Invoice finance allows businesses to get access to future revenues that would otherwise be out of reach. If an outstanding invoice isn’t due yet, the business can work with a financial institution like Fifo Capital to simply exchange the invoice for cash. The financial institution accepting the invoice will issue an upfront payment for most of the value of the invoice, before going on to collect the payment from the client. Once the client has paid, the financial institution will pay out the remaining funds, less their fee, which is set in advance.
Supply chain finance
Supply chain finance helps businesses to ensure directly that they can meet their payment obligations. Rather than paying out of their own pocket right away, businesses work with a financial institution who will extend payment to suppliers on their behalf. The supplier payment to the financial institution can then be deferred by up to 90 days. This way, businesses have more time to collect late payments, or simply to generate the revenues they need to cover short-term budget shortfalls.
These tools ensure that cash flow interruptions can’t prevent your business from paying its own bills and compromising its success in the process. Between the two, businesses can defer outgoing payments and, when needed, give themselves an advance on future income. In this way, it’s possible to free up enough cash to deal with even major cash flow problems in the short term.