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Good cash flow management is critical to business success. There are a number of different levers businesses can use to help improve their payment systems and free up more cash.
There are a number of different levers businesses can use to help improve their payment systems and free up more cash.
There is continual development in the area of cash flow management, so it’s important to regularly review how your business is managing its income and outgoings. Some of the new techniques available can make a huge difference to cash flow, enabling customers to pay more quickly and conveniently, reducing operating costs and assisting in risk management.
Gary Holdsworth, General Manager, NAB Transaction Services, says now is the time for managers to examine their cash flow cycle, “looking at how the money is coming in and what you do with it when you have it.”
He says advances in technology provide new options to collect payments online and may pull cash into the business faster and cut down on administration time. Holdsworth says many SME business owners have no control over payment terms set by a major customer, but that they still have options to enable that customer to pay more easily.
Managers who examine their financial and management reporting can find online cash collection reduces both debtor days and expenses. Apart from giving customers more avenues to pay, Holdsworth says these services help managers cut the cost and time involved in reconciliation.
On the expenses side, he says businesses can achieve considerable savings by encouraging customers to use the cheapest payment method. He’s seeing more businesses adopt corporate and business cards to control and reduce operating expenses, reduce risk and for ease of management.
“You can set a limit on how much is spent in a day and use merchant category codes so the card can only be used at certain merchants,” says Holdsworth. “Everyone can have a card but only use it for certain reasons and they‘re easy to reconcile.”
Greg Kerr, NAB Director of Supply Chain Finance in Western Australia, says invoice finance is another way to pull debtors and invoices out of a business’s accounting system, so it can borrow on the strength of sales rather than on assets that may’ve fallen in value.
Kerr says debtor finance is particularly useful for businesses with seasonal income or that are growing strongly. “Their sales are growing and so is their debtor book, but the cash balance is not growing because sales are locked up in debtors,” he says. “Using a debtor finance facility enables them to get access to cash.”
Kerr adds that growing businesses can also structure asset purchases so they’re not using cash flow to finance big-ticket items and are aligning the payment to the life of the equipment. He says employing finance appropriate to the use of the equipment and the needs of the business can greatly accelerate cash flow.
Cash flow is the lifeblood of business, so owners who make the time for regular reviews will be able to quickly take advantage of improvements in cash management and financing. Holdsworth says the benefits will flow across the business as risk management is improved and managers and staff spend less time on administration.
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