Chasing cashflow a critical issue for small businesses

FAILURE to chase up overdue payments could lead South Australian small businesses on a path to financial ruin, warns Suncorp Bank.

Research by Dun & Bradstreet shows the typical 30-day invoice payment period blew out to more than 53 days in the June quarter.

This result was worse than that recorded during the height of the global financial crisis.

Suncorp Bank regional general manager for SA Michael Goynich said small to medium enterprises simply weren’t chasing up cash hard enough.

“Cash flow is the single biggest contributor to a small business failing,” Mr Goynich said.

“More than 80 per cent of businesses are likely to fail due to cash flow and working capital pressures rather than poor sales.”

As more firms drag their heels when it comes to bill payment, more SMEs face financial strain.

“Unlike large corporates, most SMEs don’t have the luxury of having bundles of cash available to meet shortfalls due to late payments owed to them,” Mr Goynich said.

“Some are seriously struggling to keep their heads above water.”

One suggestion to improve payment punctuality was to offer discounts.

“Incentivise early payment by offering clients discount for payments received within seven days,” he said.

“However, when it comes to your own finances hold off paying bills until the end of the payment period unless discounts are offered and you’re able to take advantage of them. This will help to encourage a healthy long-term cash flow.”

Suncorp also said that SMEs could avoid cash flow problems by doing things such as:

SPENDING money to make money. Meet with an accountant or financial adviser to work on a business plan.

GIVING clients different payment options. Consider Eftpos, direct deposit and BPAY to ensure customers are reliable and pay on time.

CONSIDERING invoice financing. This allows SMEs to draw down against the value of an invoice within 24 hours of it being issued.

EVALUATING inventory regularly. Look at your stock turnover rate.

Mr Goynich said SMEs should also perform monthly reviews of cash flow and working capital.

“This will enable you to source more cash if required,” he said.

“An accountant can also help develop an accurate working capital plan. We know the number one priority for our 100,000 small business customers is to maintain sufficient working capital to fund growth.”

Article by Alexandra Economou from AdelaideNow

http://www.adelaidenow.com.au/business/sa-business-journal/chasing-cashflow-a-critical-issue-for-small-businesses/story-e6fredel-1226459213377