Don’t Assume all Businesses are Cash Flow Positive
- Cash Flow
- Growing a Business
It goes without saying that businesses need cash flow to survive. We would then assume that most businesses are cash flow positive – by this, we mean that they have more cash coming in than they pay out.
Surprising data released by cloud accounting software Xero suggests that this is not the case. Xero collect data insights across their 500,000 plus organisations in Australia and they have revealed for the month of November 2017 that only 53.9% of businesses were cash flow positive. This means that 46.1% of businesses spent more money than they banked during November 2017 – a scary statistic.
The only good news from the data is that the trend is improving. In November 2016 the percentage of businesses who were cash flow positive was only 48.7%, so it is encouraging to see that this has increased over the 12 months to 53.9%. Yet whilst the improvement is great (and a sign that the economy is improving), it is still a low figure.
With this in mind, businesses need to be conscious to always maximise their cash flow. We’ve outlined some of our best tips below:
- When dealing business-to-business, always conduct a credit check of your new customers, to make sure they aren’t a high-risk customer
- Invoice promptly when completed
- Where possible, invoice at the commencement of manufacturing or services, to assist your working capital
- Following up outstanding debtors
- Implement a debtor collection procedure (email 1, email 2, phone call 1, phone call 2, letter 1, letter 2 the refer to debt collection agency)
- Enable customers to pay by direct debit or credit card (Xero allows for credit card payments)
It is important to remember that a customer who doesn’t pay is a loss. You would prefer not sell to a non-paying customer, rather than continue to sell to them and not be able to collect your money.
If you’re concerned about the cash flow of your business or want to jump on top of it, please feel free to give us a call.