Quick Summary
Cash flow is the lifeblood of your business. In this article, we skip the jargon and give you three straightforward strategies you can implement today to improve your financial position. You’ll learn:
- How to fine-tune your pricing to instantly improve profitability on every sale.
- Simple but effective techniques to get your invoices paid faster and reduce outstanding debts.
- How to strategically manage your expenses and use tools like refinancing to relieve pressure from large liabilities like balloon payments.
For any Australian business, from a sole trader to a growing enterprise, cash flow is the undisputed king. It is the financial lifeblood that fuels daily operations, covers wages and supplier bills, and ultimately funds growth and innovation. In a stable economy, managing cash flow is important. In a challenging economic environment with rising interest rates and increasing costs, it becomes absolutely critical for survival and success.
Many business owners only think about cash flow when it becomes a problem—a sudden shortfall that creates stress and forces reactive, last-minute decisions. The key to long-term financial health is to shift from this reactive “firefighting” to proactive, strategic management. This means understanding and controlling the levers that determine your cash position. This article will provide three practical, powerful strategies that you can implement today to take control of your cash flow and build a more resilient business.
Strategy 1: Accelerate Your Invoicing to Get Paid Faster
The Critical Importance of Clear and Immediate Invoicing
The most direct way to improve your cash position is to get the money you are already owed into your bank account faster. Every day an invoice sits unpaid, you are effectively providing an interest-free loan to your customer. By professionalising and systematising your collections process, you can significantly shorten your cash conversion cycle and boost your liquidity.
Here are proven tactics to accelerate your cash inflow:
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Invoice Promptly and Clearly:
Don't wait until the end of the month. Send a clear, detailed invoice as soon as goods are delivered or services are rendered. -
Tighten Your Payment Terms:
The standard "30-day" term is a convention, not a rule. Consider shortening your terms to 14 or even 7 days. For new clients, you might even request payment upfront or a significant deposit. -
Incentivise Early Payments:
Encourage customers to pay quickly by offering a small discount, such as 2% off for payment within 10 days. This can be a highly effective way to bring cash in the door sooner. -
Make Paying Easy:
Remove any friction from the payment process. Offer a variety of convenient digital payment options, such as BPAY, PayID, credit card facilities, or a mobile EFTPOS terminal for on-the-spot payments. -
Automate Your Reminders:
Use modern accounting software to send automated, polite reminders to clients when an invoice is approaching its due date or is overdue. This ensures consistent follow-up without consuming your time.
Strategy 2: Optimise and Reduce Your Cash Outflow
Reviewing and Reducing Non-Essential Business Overheads
Just as crucial as accelerating cash inflow is being strategic about how and when cash leaves your business. A forensic review of your expenses and payment processes can uncover significant savings and improve your cash position without impacting the quality of your operations. This is a game of inches, where small, consistent optimisations compound into major benefits over time.
Consider these tactics to manage your cash outflow:
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Conduct Regular Expense Audits:
Scrutinise every line item in your budget. Are you paying for software subscriptions you no longer use? Can you negotiate a better deal with your phone or internet provider? Shop around for better rates on essentials like insurance and utilities. -
Manage Supplier Payments Strategically:
While maintaining good supplier relationships is vital, there's no need to pay bills the moment they arrive unless there's an early payment discount on offer. Use the full payment term provided (e.g., pay on day 29 of a 30-day term) to keep cash in your account for as long as possible. You can also try to negotiate longer payment terms with your key suppliers. -
Optimise Your Inventory:
For many businesses, inventory is a cash trap. Excess stock ties up capital that could be used elsewhere and incurs storage and insurance costs. Implement an inventory management system to better forecast demand, consider "just-in-time" (JIT) ordering principles, and clear out slow-moving or obsolete stock - even at a discount - to convert it back into cash.
Strategy 3: Make Your Existing Assets and Financing Work Smarter
Understanding the True Value of Speed and Certainty
Many businesses have a significant amount of cash unnecessarily tied up in their existing assets or locked into inefficient financing structures. By making your balance sheet work smarter, you can unlock a powerful and often immediate boost to your cash flow.
Key strategies include:
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Lease or Hire Instead of Buying:
For assets that you don't need long-term or that become obsolete quickly (like technology), leasing or hiring can be a smart move. It spreads the cost over time and preserves your upfront capital for other growth initiatives. -
Sell Underutilised Assets:
Take stock of your equipment, vehicles, and other assets. If you have machinery or property that is no longer essential to your operations, selling it can provide an immediate injection of cash. -
Review and Refinance Your Debt:
This is one of the most powerful but often overlooked strategies. Many businesses are sitting on legacy financing with inefficient structures or uncompetitive interest rates. A particularly critical point for review is the end of an interest-only period or a large looming commercial balloon refinance in Perth, WA. Restructuring this type of debt by refinancing it over a new term can dramatically reduce your monthly repayments, freeing up thousands of dollars in cash flow instantly.
The Role of Smart Financing in Your Cash Flow Strategy
The first three strategies focus on optimising your internal operations. However, sometimes an external injection of capital is the most strategic move. Financially savvy businesses view debt not as a last resort, but as a proactive tool to bridge a temporary gap, seize a growth opportunity, or restructure their finances for better long-term health.
Smart financing options that can improve cash flow include:
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A Flexible Line of Credit:
Establishing a business overdraft or line of credit provides a crucial safety net. It can help you manage seasonal downturns or cover unexpected expenses, and you only pay interest on the funds you use. -
Invoice or Debtor Finance:
This allows you to borrow against the value of your unpaid invoices, providing you with immediate cash to meet operational needs without waiting for your customers to pay. -
Asset Refinancing:
As mentioned above, refinancing existing assets can unlock equity and improve your monthly cash position. This turns a static asset on your balance sheet into a source of active liquidity.
Frequently Asked Questions
What is the single most important cash flow strategy for a small business?
While all are important, the most crucial first step is often creating and regularly monitoring a cash flow forecast. It provides the visibility needed to implement all other strategies effectively.
How often should I be reviewing my business cash flow?
It depends on your business, but a monthly review is a good minimum. If your business has tight margins or is experiencing cash flow stress, a weekly or even daily check-in may be necessary.
Is offering a discount for early payment really worth it?
Often, yes. While it reduces your margin slightly, the benefit of receiving cash 20-30 days earlier can be worth far more in terms of liquidity and reduced financing costs. You need to weigh the cost of the discount against the value of the improved cash flow.
My customers are always paying late. What's the most effective first step?
The most effective first step is to systematise your process. Ensure your payment terms are clear on your invoice, send the invoice immediately, and set up automated payment reminders through your accounting software.
What is invoice factoring and is it a good idea?
Invoice factoring is when you sell your unpaid invoices to a third-party company at a discount. You get cash immediately, and they take on the task of collecting the full amount. It can be a good way to solve immediate cash flow shortages but can be more expensive than traditional financing.
How much cash should I keep in a business emergency fund?
A common rule of thumb is to have a cash reserve that can cover 3 to 6 months of essential operating expenses. This provides a crucial buffer against unexpected events or downturns.
Can refinancing my business property really improve my cash flow?
Yes, significantly. If you can secure a lower interest rate, extend the loan term, or switch from principal & interest to interest-only payments (where appropriate), you can substantially reduce your monthly repayments, freeing up cash for other business needs.
What's the difference between a cash flow statement and a profit and loss statement?
A Profit & Loss (P&L) statement shows your revenue and expenses over a period to calculate your profitability. A cash flow statement tracks the actual movement of cash in and out of your bank account. A business can be profitable on paper but have negative cash flow if customers haven’t paid yet.
My inventory is tying up all my cash. What's the quickest way to fix this?
The quickest way is to have a sale. Offer discounts on slow-moving or excess stock to convert it back into cash quickly. This frees up both capital and physical space.
Should I use a business credit card to pay my suppliers?
It can be a useful strategy to manage cash flow. Paying a supplier with a credit card allows you to take advantage of the card’s interest-free period (up to 55 days), effectively extending your payment terms. This only works if you can pay the credit card balance in full when it’s due to avoid high interest charges.
My accountant says my business is profitable, but I never have any cash. Why?
This is a classic cash flow problem. It’s likely due to one of three things: 1) Your customers are taking too long to pay their invoices (poor accounts receivable). 2) You are holding too much cash in inventory. 3) You are making large loan repayments or capital expenditures that are draining your cash.
When to Seek Professional Advice on Your Cash Flow
While these strategies are powerful, you don’t have to go it alone. Knowing when to call in an expert is the mark of a smart and resourceful business owner. An external professional can provide a crucial objective perspective, helping you see the “forest for the trees” and identify opportunities you might have missed.
Key experts to have in your corner include:
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Your Accountant:
They can help you analyse your financial statements, prepare cash flow projections, and identify areas for cost savings or operational improvement. -
A Specialist Finance Broker:
When it comes to restructuring debt or securing new finance, a broker is your expert guide. They can assess your situation and navigate the market to find the most cost-effective and suitable financing solution to meet your cash flow objectives.
Improving your business’s cash flow is not a one-time fix; it’s an ongoing discipline of proactive management. By consistently implementing these strategies—accelerating your cash inflows, optimising your outflows, and making your assets and financing work smarter—you can move from a position of financial stress to one of control. This builds a more resilient, profitable, and successful business, ready to weather any economic climate and seize opportunities for growth.
If you’ve identified that your current financing structure is holding your cash flow back, it’s time to act. Whether you need to explore options for an upcoming commercial balloon refinance or want to consolidate debt to improve your monthly position, the team at Varlo is here to help. Contact us for an obligation-free consultation.