5 tips to free up cash flow

Cash flow. Sounds lovely, doesn’t it? Like a calming stream of money, flowing in and out of your business, filling you with an overwhelming sense of calm.

If only. Cash flow can often be more of a sputtering drain than a steady stream, and it’s understandably one of the biggest concerns for small business owners, but there are a few expert tips you can employ to maximise the money your business has.

James Cowlishaw, a cash management expert at ANZ Small Business Banking outlines some quick wins to introduce and the common mistakes to avoid.   

“Cash flow can allow you to do three things: grow your business, invest in optimisation or take a wage.”

1. Profit isn’t always king

One of the biggest mistakes a new business can make is focusing on profit ahead of cash flow first. “A business can survive without profit but it can’t survive without cash flow,” says James. Concentrate on encouraging swift payment from your customers so that money comes in to your business and you can leverage it in future orders to keep the business bubbling, then you can look at turning a profit.

2. Make it easy for customers to pay

One of the best ways to get money in and get that cash flow rolling is by making it easier for your customers to pay you. Think quick and convenient. Invoicing can really slow the flow, so consider implementing merchant payment facilities. You can even encourage on-the-spot payments via phone apps or plug-in card readers that can process credit card payments.

Interestingly, BPAY is a bit of a hidden gem of the payment world. A lot of consumers are very comfortable using BPAY as a payment method and BPAY data* indicates that consumers using BPAY actually pay faster. And having that cash inside your business quickly is a massive bonus.  Other options to consider, include:

  • requiring a deposit before starting a job; and
  • offering incentives like discounts for early payments – while they may affect profits, you’ll be getting the cash quicker. Just make sure it’s a discount you can afford to give!

3. Structure with smarts

Think about how you structure your money within your business. One of the companies we worked with recently to improve their cash flow was a transport company that had financed some vehicles, but they were making unnecessary extra payments towards them on a fixed contract. Some fixed rate loans will attract an ‘early payment fee’, so there is no advantage to ploughing extra cash into it. For this company it was better to just stick with the agreed schedule and put the extra cash back into the business.

4. Manage your inventory

Physical inventory can really suck up some cash. You have to pre-purchase it, pay to store it and insure it – and make sure you sell it.  Think about systems that dispatch orders direct from manufacturer to customer. They can cut right down on inventory costs and free up some cash flow, especially if you’re a wholesaler or retailer.

Another customer we worked with recently sold football merchandise. They switched suppliers and set up a system so customers could order direct from the suppliers who would also despatch the goods. The profits from that activity then came back to the football company in a lump sum. (Remember that many accounting software packages offer upgrades that include simple inventory management too.)

5. Make your own payments

It’s vital that you establish yourself and your business as a solid customer – one that’s reliable and will pay suppliers on time. You can consider using a credit card with a long interest free period to pay bills and get supplies and don’t be afraid to ask your suppliers for payment terms that work to your advantage, such as paying in instalments. 

These core principles will benefit most businesses. For advice specific to your business you can speak to an ANZ Small Business Specialist about a cash flow review.  You can also access ANZ’s free cashflow forecast template.

*Based on BPAY Usage and Attitude Survey 2015

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