The 6 Questions You Should Ask Often to Smooth Out Your Cash Flow

Are you a business owner that gets to the end of the month and wonders why your operating account is looking a little lean? You know your business is profitable because your Profit and Loss statement tells you it is. So does your accountant.

Profit and positive cash flow do not always go hand in hand. Elements of timing, accrual accounting practices and slow to pay customers can contribute to cash flow problems.

Being across your numbers helps you manage your budget, forecast for future dates and allocate your resources for seasonal peaks. Knowing your bottom line is helpful, however having a solid grasp of the principles of cash flow management will ensure you can pay your team and suppliers when you need to.  

These are our tips to maximize your operating funds balance and the 6 questions you should ask your accounting team or book keeper often.

Run Cash Flow Projections

Regular cash flow projections are based on assumptions such as sales, costs, credit and funding. They are often based on similar periods in previous years allowing for growth or other factors.

Ask These Questions Often

There are several questions you can ask your accounts team to help manage your company cash flow better.

1. Is your invoicing done as soon as it can be?
   Delays in issuing invoices turn into delays in payment.

2. Are you providing your customers too much credit?
   Consider your invoice terms. Are they industry standard? Too lenient?

3. Are you ruthlessly pursuing your accounts receivable?
   Can you add a late payment fee to encourage paying on time? Are you tough enough with late payers?

4. Are you using best practice accounting software so that you have accurate and accessible data?
   There are so many great cloud based solutions out there such as Xero, Quickbooks & MYOB. All have P&L Reporting, Balance Sheet reporting and cash flow projection tools.

5. Are you on the best possible payment terms with your suppliers?
   Often good cash flow management involves balancing this carefully with your accounts receivable.  Ideally you want your outstanding invoices paid before you have to pay your suppliers. Even better if you don’t have to pay for stock until it is actually sold!

6. Do you have enough funds in a cash reserve to cover operating expenses in times of future cash flow issues or unexpected expenses?

So Your Cash Flow is Just Lumpy

Sometimes even despite the utmost skill and discipline in managing debtors, cash flow projections and business growth, there are just times when you need access to cash to smooth out a lumpy cash flow. You might be facing a great opportunity to take on a bigger customer and need access to cash to service the account. Or payroll has come around again and you are waiting on your biggest client to clear their outstanding balance.  

This is where modern invoice financing can come in. At Invoice Money we offer SME’s access to invoice finance solutions that include no lock in contracts. We advance an agreed percentage of funds of your invoice’s total worth. Once the invoice is paid by your customer, we return the remainder to you (less fees). Simple!

Often we advance funds for unpaid invoices to approved clients in as little as 24 hours. The approval process is quick and painless. You will wonder why you haven’t considered trading your outstanding invoices for cash before!  

Following best practice cash flow projection and management principles and making use of modern invoice finance resources can help you meet your financial obligations and help your business grow.

If you are the Managing Director of a SME with cash flow concerns, get in touch with our friendly team to discuss your requirements. You can contact our team in Melbourne or Sydney here.