With many businesses redirecting funds and sacrificing growth to fill cash flow gaps — including from invoice payment times blowing out to four months or longer — there is an onus on SMEs to implement protective strategies to keep cash coming in without alienating customers and suppliers.
“What we do is, we actually do percentage billing, so that makes it a little bit easier: we’re getting part of our payments up front,” said Shelley Foster (pictured), general manager of cloud software advisory firm Business Continuum.
“And sometimes with some of the work that we’re actually doing, it’s a very short period. So, we might... bill at the beginning, take a deposit, and then we bill at the end.”
Ms Foster added: “We don’t have a lot of chasing of debt, because we do it that way.”
She said that more complex projects are also split up in a similar way so that her business is getting periodic payments that also reduce the size of bulk payments for clients.
“If we’re doing one project, it might be training and things like that, and another part of it might be actual deployment, we split up the payment so that instead of having one payment that we’re chasing, they might come forward and pay one part of it, and we’ve only got a smaller amount of debt to be actually chasing on it,” Ms Foster explained.
“It’s just a way to cover it... even if it’s not the full amount, at least it’s some: it’s keeping the cash flow[ing].”
Ms Foster’s comments were part of the My Business Live webcast on business cash flow.
Meanwhile, fellow webcast panellist, SAP Concur’s Keith Payne pointed to the use of credit cards and their interest-free periods as another means of overcoming cash flow shortages.
“Obviously, you want to have great relationships with your customers, but you also want to have fantastic relationships with your suppliers as well,” he said.
He said there are the well-known strategies of offering discounts for early payment, but other strategies are perhaps less well known.
“One that we’ve seen, which is more around the payment of invoices and the extension of credit terms, is that with a [digital] solution... it’s actually a credit card gateway as well. So, what you’re actually able to do is have in place a... purchasing card from your bank, so that you’re able to actually pay your supplier through the credit card in the set amount of days so that your supplier gets the money. But the credit card will come with 55 days interest free on that.
“So, you’re actually able to extend the cash coming out of your business by an additional 55 days, your supplier gets the money that they need, and you’re actually able to then... buy yourself some time to get the money through from some of those late payers.”
As previously reported, ATO assistant commissioner Andrew Watson said that another means of avoiding late payments is simply to minimise human errors in the sending of invoices. He noted that research conducted by the Tax Office suggested that 20 per cent of invoices paid late contained incorrect details, and a further 20 per cent were simply sent to the wrong address.
Mr Watson also discussed the role e-invoicing will have in reducing late payments as it is progressively rolled out across government.
The full webcast panel discussion, covering a range of cash flow-related topics including tax, technology and e-invoicing, debt collection strategies and more, can be viewed via the dedicated My Business web page.