A RELUCTANT FAREWELL
Managing payables, particularly for fast growing companies, can be equally overwhelming, as increased purchases mean greater outgoing cashflow demands. To improve your business’ payables, ensure you’re taking full advantage of available creditor payment terms, including regular negotiations to extend these where possible... don’t be afraid to ask!
Carefully consider any creditors’ offers of early payment discounts, as they may be more expensive to your borrowing costs. There is also the hidden opportunity cost of not being able to utilise the funds in your business during that time. Your payments should also be diarised and prioritised with payments made by electronic funders transfer, so that payments can be made on the latest possible due date and recorded.
CHOICES FIT FOR A KING
Anticipating future cashflow shortfalls does not spell the end of your fast-growth business. An increasing array of cashflow finance options are becoming available in Australia.
The most common of these is a traditional overdraft, which is available from your bank and is typically secured against real estate, such as the family home or business premises. It provides your business with a flexible line of credit that can be drawn and repaid as needed.
A more recently launched option is inventory finance, providing working capital for your stock purchases. Uniquely, inventory finance is available without any requirement for real estate security or stock pre-sales. Inventory finance provides a cash injection at the start of your business’ cashflow cycle, by paying your suppliers upfront for stock purchases, with repayments timed to match cash receipts from your sales.
Debtor finance, such as invoice discounting, is another alternative that provides finance against your debtors, once the stock is sold, invoiced and delivered. These debtors are then used as security for the loan; naturally this doesn’t suit retailers who don’t hold debtor accounts. Factoring is a very similar facility, except that responsibility for the collection of payments from your customers is handed over to the factoring finance provider, which suits some businesses but not others.
PLANNING THE KING'S SCHEDULE
Cashflow planning is essential to develop the necessary capital strategies required to fulfil your business’ working capital needs. Recording and then reviewing your past year’s cash flow statements will enable your business to make more reliable cashflow projections for the coming months or even year.
These projections aren’t to impress your accountant, they’re produced to assist you identify potential problems in your cashflow cycle, as almost every business experiences excess cashflow requirements at some point.
The key to managing cashflow shortfalls is becoming aware as far in advance of any future problem and then knowing how to either avoid them or raise more cash in a timely and suitable fashion.
About The Author
Matthew Nolan is managing director of Provident Inventory Finance, a specialist lender offering Australian businesses the resources to grow beyond their current cash flow constraints, funding the purchase of additional inventory for manufacture or resale. For more information on financing your business growth visit www.inventoryfinance.com.au
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