Well-managed cash flow is when your business has enough money on hand to pay its bills and expenses. Cash is different to other assets your business may have, such as tools or equipment, because it’s instantly accessible. If you’re spending more than you’re receiving, you may find yourself unable to meet your obligations.

Here are some ways you can manage your cash flow to keep more money flowing into your business than out, and what to do if you find yourself short.

1. Monitor your cash flow

Prepare annual, quarterly and monthly cash flow projections and closely monitor your operating expenses, overheads, stock levels, debt collections and profit. An accountant can help review your cash flow to highlight areas you may have overlooked, and plan for potential cash flow problems.

If you've got a CommBank Business Transaction Account, set up smart alerts and we'll instantly tell you if your account balance is low, high, overdrawn or if you've just been paid. 

2. Tighten payments

Receiving payments faster will boost your cash flow. One of the easiest ways to speed up your payments is to send invoices immediately after the delivery of goods or services. You may also want to consider shortening payment terms, or the time window you give your customers to pay you, particularly if they are longer than 30 days.

A mobile EFTPOS device can give your customers an easy way to pay on the spot no matter where you are, removing invoice time lags.  

3. Stick to terms of trade

Set out clear payment guidelines for your customers and consider reviewing your supply terms if a customer regularly fails to pay on time. Think about offering a discount for early payment or put a statement on your quotes and invoices indicating that you reserve the right to charge interest on overdue accounts.

4. Know your customers

All companies have different payment habits. Some pay everything on the same day each month, while others pay on an ad-hoc basis. It’s worthwhile getting across the payment practices your customers use so you can factor this into your cash flow planning.

5. Utilise payment times

Similarly, understand the payment terms of your creditors to improve your cash flow. For example, if a payment is due in 30 days, don’t pay it in seven days unless there is a discount for early payment. This will help you keep money in your account for longer.

Using a business credit card to pay suppliers can be a way to manage cash flow, while taking advantage of interest-free payment periods, as long as you can pay your closing balance in full at the end of each month.

6. Separate accounts

Separating your personal and business finances can make it easier to keep track of your business cash flow. It will also keep your expenses separate, saving you time and money when it comes to doing or asking your accountant to do your tax reconciliation or business activity statement.

Opening a separate business savings account may allow you to earn interest on your cash while still leaving funds accessible when you need them.

7. Review inventory

Do regular inventory reviews to hold only as much stock required to run your business efficiently. Excess stock can tie up cash and increase storage and insurance costs.

8. Cash crunch management     

Cash shortfalls can happen to any business, and a credit facility such as an overdraft can help cover operating expenses temporarily. This can be an effective way to meet short-term working capital requirements when cash flow is low. If used wisely, the interest should be relatively low because the business only pays interest on what it borrows for a short period.

If you need to make a larger purchase, a business loan can minimise cash flow impacts and provide flexibility. For example, with a BetterBusiness Loan you can access any additional repayments you’ve made via NetBank or CommBiz.

Your local Small Business Specialist can help answer questions about things you need to consider, such as fees, interest rates and payment terms.

9. Budget your spending

If you’re a start-up, it can be easy to overspend as you try to make an impact. Keeping key jobs at the top of your list of things to do can help you prioritise things such as launching or promoting your business. Thinking about the cost and the relative benefit it might bring can help you assess what you need to do and what might be an ‘impulse spend’.

A business budget can help you to keep cash flow healthy, because you’ll know what you can afford to spend, and when. Setting and monitoring a budget will also encourage you to review your spending so you can make sure it’s as efficient as possible.

10. Create an emergency fund

Creating an emergency fund for your business, in the same way that you might for your personal finance, can help you be prepared for any unexpected expenses.

Cash-flow warning signals

Your cash-flow cycle is likely to be slowing if:

  • Your suppliers go unpaid for more than 60 days
  • You regularly have disputes with suppliers or change suppliers 
  • You often lodge your Business Activity Statement (BAS) late
  • Your employee super payments are in arrears
  • Suppliers insist on cash-on-delivery

Stay on top of your cash flow and keep momentum going for your business.

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Things you should know

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information. Applications for finance are subject to credit approval.