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Nine Ways Your Clients Can Solve a Cash Flow Crunch

Cash flow is one of the biggest challenges for most SMEs. The lack of cash flow can be caused by a number of factors, including slow debt collection, seasonal sales fluctuations, overproduction or too much stock. Whatever the reason, a lack of cash flow can be a threat to business survival. Here are a few ways your business finance clients can overcome a cash flow crunch.

1. Create a cash flow statement

A cash flow statement is an essential tool for managing business finances. It shows the amount of cash flowing in and out of a business each month. Most accounting software programs make it easy to create a cash flow statement or it can be done with an Excel template. Find out more in What Is a Cash Flow Statement?

2. Stay on top of accounts receivable and collect debts

The Accounts Receivable Report is a good place for your clients to start because outstanding debts are one of the biggest causes of cash flow problems in Australia. In fact, on average, Australia businesses are owed $38,000. This can be a large sum for a small business that’s having a tough time with cash flow. 

Businesses that are owed money need to take action. This can include getting on the phone to collect outstanding debts. If customers are excessively late, a collection agency can help chase the debt. Most of these agencies work on a commission basis on a sliding scale. So the higher the invoice amount, the lower the commission rate. If your clients have overdue invoices, it could be worth paying 10% to 25% to a collection agency to improve their cash flow. 

Learn more in Protect Your Business with Credit Policies and Procedures.

3. Negotiate to delay payments

Your clients might be able to improve cash flow by negotiating better payment terms with clients. For longstanding clients, suppliers are more likely to offer longer payment terms. For example, if your client is on 15-day terms, they can ask to change this to 30-day terms. While it won’t always be approved, it’s worth asking.

4. Ask for discounts from suppliers

If your client makes large purchases, they can ask for a discount. Even a small discount can add up over time. Getting discounts on regular purchases is one way to improve cash flow. 

5. Dispose of assets that aren’t being used

A business can free up cash by selling assets that aren’t being used. For example, if a business purchased a vehicle for delivering products and is now outsourcing this function, it can raise cash by selling off the unused asset.

6. Run a sales promotion to sell old stock and fill excess capacity

Businesses that sell products can consider offering discounts to sell off old or slow-moving stock. Service businesses, with ongoing fixed costs, can take action to sell more services. If services are delivered over a short time frame, it will help to boost cash flow quickly.

7. Stop non-essential spending

Your business clients probably have non-essential purchases they can be cut back or delayed. For example, a business that has high business travel expenses can consider online meetings to reduce expenses. They can also look at small things such as turning off office lights and computers when not in use to save on energy bills.

8. Raise prices to improve cash flow

Your clients’ cash flow issues might be a result of not charging enough for products or services. If a business is making enough sales but is suffering from poor cash flow, its prices might be too low. Business owners should scan their market and see what other people are charging. If they are at the low end of the scale, they can consider raising their prices to improve their financial health. 

9. Use unsecured business finance to improve cash flow

Short-term unsecured business loans have become more popular as a way to improve cash flow. While traditional bank loans can require a large amount of time and paperwork, unsecured business lenders such as Moula make it easy to apply for funding. With Moula, for example, the loan application can be completed online in under 10 minutes.

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All the thoughts, ideas and musings from the Moula team! Covering everything from work/life balance to general finance tips plus everything in between!

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