Big Ideas

Beat the cash crunch this summer

Improve your cash flow

12 December 2018

Worried about the cash flow and cash position of your business, especially around the Christmas and New Year period?  

The brutal truth is that December & January are often slow months for collecting payments and this can cause stress during what should be a time of relaxation. All of the regular expenses (salaries, wages, rent, suppliers etc.) are still due, but customers are either away on holiday or may be delaying payment to ease their own cash flow concerns.

 

Signs you are heading for a cash crunch:

  • The staff who monitor and manage cashflow take holidays, leaving you feeling you are flying blind.

  • You don’t receive expected in-bound cash but must cover regular outbound monthly payments.

  • Your cash buffer or overdraft isn’t enough to cover all of your payments but key bank staff are unavailable to negotiate an increase or to provide speedy assistance. 

Using your time wisely by paying attention to your cash flow prior to Christmas really can improve your cash position in the New Year and set you up for successful year ahead. Here are a few ideas to improve your cash flow this summer. 

6 actions to improve cash flow:

  1. Issue invoices as early as possible. Make sure you prioritise jobs you can complete quickly so you can invoice clients immediately. If yours is a business that invoices at end of month, try invoicing on a weekly basis. If you invoice when work is completed, then see if you can send an interim or progress fee for work completed to date. 

  2. Call everyone that owes you money. As well as an attempt to increase your chances of getting paid, you should see this as an opportunity to connect with customers - you need to think for the long term as well as the short! Remember to utilise technology - switch on automatic reminders and send statements. 
  3. Prepare a cash forecast. A cash forecast is a useful planning tool that will help you identify issues early. If it points to a cash shortfall then talk to your suppliers in advance and aim to lengthen your payment terms. Also, make sure you review your overhead expenses, check whether you are incurring costs for services that you do not need, and review your banking and finance arrangements - it is possible that these can be arranged in a smarter way. 
  4. Give your customers more ways to pay. Make it easy for customers to pay you and they might do so faster. Today you can offer online invoices that allow clients to 'pay now' from within the invoice. There's also online, direct debit, and credit card payment services that are very easy to set up - GoCardless and Stripe are a couple of good examples. 
  5. Be wary of new prospects that need work completed quickly and want credit, or of customers that seem too good to be true. If you think that there is a risk, try running a credit check or ask for payment in advance. 
  6. Don't forget to pay your tax. IRD expects GST and provisional tax payments to be made on January 15. Currently, interest of 8.22% and late payment penalties apply if you miss the payment. Here’s a tip: If paying both is going to hurt the bank balance, prioritise paying the GST. You can utilise the services of an IRD-approved tax pooling provider such as Tax Management NZ to pay the provisional tax later and reduce IRD interest by up to 30% and eliminate late payment penalties.

Need help?

As always, we’re happy to work with you to get on top of things so that you can enjoy your summer break. Call us today! 

 

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