If cash flow worries are keeping you awake at night, you’re not alone. Research from the University of Otago* shows that managing cash flow is one of the main challenges faced by Kiwi business owners.
So how can you get it right? The team at KPMG Enterprise brings you the following tips on achieving smooth and efficient cash flows.
Most businesses will encounter cash flow issues from time to time. But this shouldn’t be a chronic problem, or become ‘business as usual’ for you. If it has, there are underlying issues that need addressing. Perhaps your own late invoicing is causing slippage in payments received; or your terms of trade are too generous. There are a number of possible reasons, and a professional adviser will be able to diagnose your problem straight away.
Whenever you begin a new trade relationship, it’s important to negotiate terms of trade that work for you. As a creditor, your ideal terms are payment on invoice, or within 7 days. However some clients, particularly large organisations, can ask for extended payment terms of up to 90 days (or even 120). Although you might be keen to win their business, be realistic about the terms you can support.
You may have encountered this one before…a debtor says they can’t pay you because the date/purchase order/minor detail on your invoice wasn’t correct. This may be genuine - or it may be a delaying tactic. Either way, it’s important to understand your client’s payment processes. When you invoice 100% accurately, those frustrating excuses will be a thing of the past.
Trying to run your business without a clear and detailed cash flow forecast is a bit like driving in the rain without windscreen wipers – you can do it, but you’ll have no idea where you’re going!
This means being aware of every completed transaction, as well as picking up all those one-off and irregular payments. While you can do this manually, technology will streamline the process and increase your accuracy (see below).
Are you still working on a paper-based accounting system? Then it’s time to update to an online accounting solution. One of the many advantages is that you’ll be alerted to any late payments, and have the ability to send reminders a few days before payment is due. KPMG also provides clients with a Cloud-based portal that shows how their business is tracking in real-time, including that all-important cash flow.
When your business is growing fast, it’s even more critical to manage cash flows effectively. Outsourcing your accounting needs to a professional firm – with proven systems and processes - can save you both time and money. (For instance, KPMG Enterprise offers a Core package from just $200 per month).
Most business owners often don’t have time to chase creditors (nor do they want to); so credit management is another specialist area that’s worth investing in.
Any burning questions?
Send us your burning question on Managing your Cash Flow, and we’ll be happy to answer it.
Or if you want to know how KPMG Enterprise can help your business, give us a call on 0800 576 472.