Despite ongoing efforts by the ASBFEO and the government, businesses are still being impacted by late payments and poor cash flow. A small survey of 153 businesses by MyBusiness found that more than half—58.9 per cent—considered themselves lucky if payments were received within 30 days. More worryingly, a survey by the payment platform Grapple shows that late payments are impacting both businesses and consumers, slowing business growth.
These surveys help to outline how cash flow irregularities like late payment prevent business growth, and ultimately impact consumer spending. In order to avoid the challenges presented by late payments and other cash flow issues, businesses need to take more direct control of their finances.
Bad cash flow prevents growth
Unreliable cash flow can prevent otherwise viable businesses from gaining traction and growing to realise their potential. This is due to both the effects it has on a business’ finances, and on business owners themselves. A business that can’t budget reliably may be forced to hold funds in reserve instead of investing them to drive growth. Those who can’t do so, on the other hand, are often forced to abandon growth-related projects when funds run out or are diverted to manage a more critical budget shortfall.
Business owners and leaders who work in this kind of cash flow environment quickly find their time dominated by financial concerns. Reorganising budgets in the near term becomes their central focus at the expense of planning for their business’ future. According to Grapple’s survey, nearly half resort to injecting personal funds to keep their business operating smoothly.
Impacts on individuals
Many of those who spend their personal funds on their business report tapping important personal savings meant for their or their childrens’ education or medical expenses. This illustrates how poor cash flow can impact the health of business owners, and even harm the next generation by depriving them of educational resources.
Implementing effective cash flow solutions
At a time when the national economy is weakened and Australians are encouraged to keep up spending, consumers need confidence and businesses need cash flow support to make the most of that demand. Considering that those consumers are, in large part, the very same business owners and employees who rely on these businesses, improving business cash flow is key to accomplishing both. This, in turn, is primarily about ensuring that businesses have access to, and are aware of, the tools that they need to take control of their cash flow.
Going through the process of taking out a loan is time consuming and can limit a business’ ability to access more loans and investment later on. Fortunately, debt isn’t the only way to come up with additional cash. Invoice finance is the fastest and simplest way for a business to access additional funds as soon as a cash flow interruption presents itself. More importantly, it doesn’t involve taking on any new liabilities. Instead, businesses simply trade in outstanding invoices for cash. Instead of waiting for an invoice to come due, and payment to arrive, they can simply give the invoice to their financial institution in exchange for instant funds. The financial institution then collects the outstanding payment from the customer on the business’ behalf.
This means that, if needed, the business can be paid as soon as an invoice is issued. Moreover, it eliminates the issue of late payments altogether, meaning that payment becomes both reliable and easy to manage. Not only does that allow businesses to budget more effectively and to manage unexpected cash flow issues, it also helps them to reclaim most of the time that would otherwise be spent wrangling their finances.
Supply chain finance
Supply chain finance allows businesses to pay suppliers without immediately cutting into their own working capital. Instead, their financial institution makes payment to the supplier on the procurer’s behalf. The supplier can also request early payment in exchange for a discount on any given invoice. The procurer, for their part, can defer payment to the financial institution by up to 90 days after the invoice is issued. As a result, businesses can confidently make supplier purchases when they need to, knowing that they can wait up to 90 days for additional revenues to come in to cover the cost.
Being aware of—and knowing how to best use—cash flow management tools like supply chain finance and invoice finance gives businesses the financial flexibility they need. Not only does it help them to quickly and easily deal with cash flow irregularities, it also keeps their balance sheets clean, and their personal funds where they belong.