Staying afloat over summer

Cash flow is the life blood of any business, without it a business ceases to function.

Trend analysis conducted by Xero on its small business customers in New Zealand between 2011 and 2014 showed that accounts receivable is on average 30 percent lower in January than the 12 month average.

It's obvious the primary cause of this is the holiday season. However, just because it's the holiday season doesn't mean the monthly bills stop rolling in from your creditors. Therefore, it makes sense to maximise your cash flow before the break for the Christmas/New Year period. You need enough cash flow to get you through to the next billing cycle.

Here are some tips which could help you over this period and indeed for the rest of the year.

1. Reconcile your bank account and monitor your receivables daily.

The more often you reconcile your bank account the better picture you have of what is still outstanding. This means you can better plan when you pay your bills and also identify which debtors need to be chased up.

2. Invoice immediately and where possible use email

The quicker you invoice your customers, all things remaining equal then the faster you get paid. Invoicing immediately seems like common sense, however this sometimes requires discipline. Often invoicing is seen by some as inconvenient or something that you only do at certain times of the month.

These days many accounting programs allow you to use mobile devices to create and email invoices on the spot. This means invoices can be created and sent immediately after a job is finished or service is performed.  Many programmes, such as Xero, also assist customers with making automatic payments once they've received their invoice. Make it as easy as possible for your customers to pay you.

3.  Write detailed descriptions on your invoices to avoid confusion

If customers are confused over the details on a bill then they may be reluctant to pay. They are likely to take up more of your time as they seek clarification. By being really clear and concise with your invoices you will avoid wasting precious time.

4. Set your own payment terms

By making sure you have a due date on your invoices you can be certain that your customers know when it's time to pay you.  In some circumstances it may even be appropriate to offer discounts for immediate payments. It may also pay to have provision for interest charges to discourage late payments.

5. Use a third party to collect your debts

Chasing late paying debtors is never fun and takes up precious time. So why not use a third party to do the job for you? Often this takes the personalities out of the equation and is more effective at overseeing the process. There is even software available that can chase debt for you.  Services such as these send reminders to your customers that invoices are almost due. You can also set your message text, timing and frequency to suit.

6. Reign in your spending

One way to combat less cash inflow is to create less cash out flow. You could do this by deferring capital work until later in the year or perhaps pay some of your regular bills in advance when cash flow is strongest.

If you need any help or advice with this, give us a call on 578 3386 or askme@tva.co.nz.

Adrian Ferris

Adrian Ferris is a qualified Chartered Accountant, managing TvA's Commercial Team.