Even as businesses across Australia and New Zealand brace for rising interest rates and costs in the months ahead, protecting one’s cash flow has never been more crucial. Unfortunately, payment delays, along with supply chain issues and labour shortages, continue to be a major pinch point.
“Cash flow is the lifeblood of a business. Without it, a whole heap of problems can arise,” observed Matthew Gannaway, Chief Executive Officer at EC Credit Control. “From paying suppliers and staff to buying materials, there’s probably nothing more important than a healthy cash flow. Without it, they could face additional pressure from their creditors, and it can take a toll.”
Unfortunately, many businesses can struggle with putting structures in place to ensure smooth, punctual payment cycles when it’s not their core business. As timelines extend between payments, the true cost of not getting paid extends beyond pending invoices. For the average unpaid amount of around $5,000 offering a $250 profit margin on the job, the true cost of the debt is almost 20 times that amount – it lies in the more than $90,000 revenue required to pay back the money lost.
Mr Gannaway elaborated, “It probably starts with their onboarding process and not having an adequate process to clearly understand who it is that they’re dealing with. Short of sending a couple of emails, nothing tangible happens.” He estimates around 20 to 30 per cent of such payment delays end up translating into strong legal action, which can further affect business activities.
“You wouldn’t do that for a couple of thousand dollars but for larger amounts like $20,000 or $50,000, the debt makes a real difference to a small business,” he noted.
Exploring debt management and resolution
Perhaps the best way for businesses to keep up their credibility and relationships while still resolving debt lies in using leading specialists in the industry. With over 80,000 businesses assisted in its three decades of operation, EC Credit Control proudly provides friendly, approachable services to help improve the financial well-being of businesses.
“We really try and maintain the relationship between both parties while seeking resolution on their accounts,” Mr Gannaway explained. “Depending on the reasons, the process could go a few different ways, but we really see ourselves as a support service.” Upon registration, their simple six-step debt resolution process begins with just a two-minute initial stage to load unpaid invoices.
Leveraging data-driven solutions like automated phone data systems and seamless linking to Xero, EC Credit Control has achieved impressive results through its resolution-based approach. In Australia alone, their more than 40,000 clients range from small businesses to large corporations. “A part of our process is asking for feedback from the businesses that we’ve resolved debt from, like a customer survey.
We’re currently sitting at 4.2 out of 5 stars, which goes to show that we’re really trying to work with everyone involved to get the desired result.” Debt resolution doesn’t have to be an antagonistic process, he adds. “That doesn’t really get anybody anywhere. We don’t want to have that type of confrontation. Instead, the questions we ask are, ‘what’s the best way to resolve this account with you today?’” Mr Gannaway said.
Delivering business documents
Apart from specialising in drafting contracts and privacy policies, a crucial part of their successful process has been ensuring appropriate Terms and Conditions of Trade are in place. Not only does it clearly state obligations and consequences, but it outlines all the duties, timelines, and details involved for both parties. Malcolm Gay, Australia Sales Manager at EC Credit Control, noted: “It’s a document that establishes the clear relationship with your customer from the beginning, so there’s no ifs or maybes.
These terms can vary between industries and between businesses within the same industry. There’s no one size fits all. “It’s best practice to have some custom terms and conditions in place that are specific to a business and its operation. It’s also important to review them every couple of years or so when legislation changes because it’s likely business operations have changed over time as well.”
As businesses prepare for uncertain times ahead, ensuring processes are kept in writing offers a crucial layer of protection. “While it may not have been on a business’s agenda to have something like terms and conditions in place, it’s an important step to protect the business in today’s economic climate,” Mr Gay said. To explore EC Credit Control’s debt resolution systems, click here or call their friendly customer service team on 1300 361 070.
Critics by Southwest Recovery Services
In order to stay afloat and see your business succeed, you must manage these two key aspects. When you master your cash flow management and navigate toward the profit line, you’ll propel your business towards success. Here are 10 highly effective habits to protect cash flow.
1. Know Where You Break Even
Knowing exactly when your business becomes profitable helps your overall cash flow because it gives you an early goal. When your business has an early set goal to strive for, it helps predict and protect future cash flow—keeping your business running successfully. In the meantime, focus all your efforts on managing your early business cash flow until you hit that profit line.
2. Instead of Focusing on Profits, Focus on Cash Flow Management
True, we just got done saying that the profit line was important. However, both are important and both simultaneously are crucial to cash flow management. Use your profit line as an initial goal, and then afterwards focus on cash flow management. After these first two steps, your business is poised for success.
3. Keep Some Cash Reserves
Unfortunately, most businesses will experience cash shortfalls. It’s for this very reason that keeping cash reserves handy determines whether or not your business survives these shortfalls of money. If you start and run your business with some extra cash reserves, you can more easily focus on managing cash flow when experiencing cash shortfalls.
4. Use a Cash Flow Worksheet
Whether using a spreadsheet or simply writing it down, it’s important for every business to use a cash flow worksheet. Keeping a worksheet does wonders when managing cash flow.
5. Collect Receivables ASAP
Try keeping net-30 and net-60 contract terms to a minimum. If necessary, create a task of keeping an eye on receivables—along with contacting customers periodically to collect payment—to an honest and persistent member on your team.
6. Encourage Customers to Pay Faster
There are many ways to encourage your customers to pay faster. For instance, offer your customers incentives like early payment discounts. Also, keep credit requirements strict. Establish a set of standards for determining credit eligibility. Enforce those standards strictly. As a general rule of thumb, you don’t want every customer approved for credit.
7. Extend Payables as Long as You Can
Get the best deal you can on payables. A good place to start would be to extend your payables to net-60 or net-90, if possible. However, some suppliers charge late fees, so make sure payments are on time.
8. Use Creative Incentives to Boost Sales
This can be fun to come up with! For example, some creative ways to quickly boost sales could include sponsoring a fun contest, hosting a customer appreciation event, offering referral bonuses, or taking your employees on a business publicity tour.
9. Dub Someone the Cash Flow Monitor
Designate the task of monitoring cash flow to someone who qualifies, a trustworthy employee. Make sure that person informs you when you reach a certain threshold. For example, a good start would be to notify you when your cash flow hits $1,000.
10. Use Technology to Your Advantage
Last but not least, keep technology to your advantage. For instance, keep cash flow spreadsheets in the cloud at sites like Dropbox, OneDrive or Google Drive so you can access them from anywhere. Additionally, it’s good to use professional accounting software.
As an added note, make sure you keep your files secure. Make sure they remain secure even if you have to combine your storage and accounting software into one package.