Here is a simple trick when I was studying the cash flow cycle of businesses.
In the past 12 months, I have witnessed a dramatic focus on the business ability to recycle the cash in the business and the way it meets its monthly commitments. More specifically, I have found myself focusing on businesses taxation commitments and whether they are up to date.
It’s a key red flag for all bankers on whether you are behind in your tax position (usually your accountant will tell you this – if they aren’t, find a more proactive accountant). This is especially important as more businesses are finding it more difficult to get people to pay on time and yet, have outstanding bills that needs to pay.
Essentially, businesses are getting squeezed from laggy customers going beyond their 14 days term (and moving to next credit term bracket) and demanding suppliers and the taxman and without the right cashflow solutions, you will be welcomed to struggle street very quickly.
So, what solutions are out there to help you out from this predicament?
Well, one solution (that is relatively cheap and quick to obtain) is a merchant facility i.e. a facility that can accept credit card payments.
Merchant facilities are actually quite useful, whether you are retail or service-based business on the impact it has on businesses’ cashflow.
Do a little exercise for me –
Look at your aged debtors list and tell me from that list, are there any small invoices that has been left at the wayside and is now sitting in the 90+ days column? Is it too small to spend your time chasing or that pesky customer is always elusive in getting hold of?
With a merchant facility on hand, especially for the smaller invoices where payment can easily be paid by a credit card, getting payment on the spot or over the phone have the following benefits:
- Earning interest from receiving cash faster/Reducing the interest on your overdraft
- Improve the probability of getting paid – the longer you leave your debtors with outstanding debts, the harder it is to recover.
- Reduce your overhead – time is one of the most valuable assets you have. If you are spending time chasing people, you’re not chasing new sales lead. If you employ someone to chase it for you, how much will you save if 2-3 hours of work per week has been eliminated? Multiple that figure by 52 and you will figure the annual cost.
Most of the major banks and some regional banks have everyday settlement (you might have to open a business account with the bank before you get that benefit):
Now, obviously its not a one-size-fits-all solution but if you feel that it would benefit based on your customer mix, its one process streamlined.