4 ways to fix your cash flow problems

As we experience yet another Covid lockdown and lockout across the country, and now without the JobKeeper safety net, it highlights the importance of cash flow in Australian businesses.

How do YOU manage YOUR cash flow?

Head of the Restaurant & Catering Association, Wes Lambert, described the situation to Yahoo Finance yesterday as another “crushing blow” to the industry.

Running a business without cash is akin to flying an aircraft with half the required fuel load.  When it runs out, a crash is inevitable.

But there are a number of solutions that you may want to consider for your business.

Here are 4 ways to fix your cash flow;

  1. Line of credit– if you own a property, a line of credit is often the cheapest form of credit for business owners because the loan is secured by real property and thus subject to home mortgage rates of around 2.5-3% in the current environment. That is very cheap credit!
  1. Business loan– business loans are typically significantly higher than home mortgage rates and around 8% in the current environment. Whilst this may sound expensive, it should be considered for a short period of time. If you run a profitable business with high margins and this is likely to be a short term issue, then 8% interest will be considered cheap.
  1. Factoring– factoring is like selling your receivables to an external company. It starts around 10% but can be much more costly so don’t jump into this without doing your research.
  1. Payment terms– too many businesses simply allow their customers to use them like a bank by providing interest free credit and slow payment on debts. You can reduce your terms from 30 days (often blowing out to 90 days) to 7 days, or even taking payment upfront.  This will have a huge effect on your business. Don’t give credit where it’s not due!

Cash flow is the life blood of your business- don’t throw it away!

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