Cash Flow Management During COVID-19

Are you a business owner preparing to be impacted by the effects of COVID-19? We have some straightforward advice on what to look at when planning your cash flow management to help give you the best chance of riding out the pandemic.

Small businesses are going to be impacted across the country and the ability to maintain cash flow will be paramount.

Chasing late payments

At the best of times, late payments were already a top item of concern for small businesses across Australia. In stressful times such as these, getting on top of payment tardiness is crucial.

However, tact and understanding must be employed.

I’m sure we can agree that these are difficult times. As such, it’s important to work compassionately with your customers and be flexible with unpaid invoices.

If your customer can’t cover the entire balance of the invoice in one go, try to get a partial payment or create an instalment plan. But at least have a plan laid down so you can make more accurate cash flow predictions.

How to chase invoices

You can start by chasing late payments with a friendly email, followed by a phone call. Be firm but understanding.

If that’s not getting you anywhere, try asking to talk to the person who will actually make the payment. That way you can extract a promise from the person in charge to pay by a particular date.

Can you refinance your debt?

Interest rates have just dropped again to historic lows. This may help.

Are you able to refinance the current business debt you have? If you have personal debt or a mortgage, is there an opportunity to refinance that?

Check in with your bank or financial institution. Only by discussing the options with the right advisor will you have the chance to do something positive for your business’ cash flow by refinancing.

Negotiating credit card debt

While you’re at it, have a discussion with your bank about credit cards (particularly if you hold significant debt on a card). Try to renegotiate interest rates, payment terms and late fees. There are increasing signs this is becoming a more approachable topic.

Supplier negotiation

Approach your suppliers about extending their credit terms.

They may be hurting too, so be sensitive about the issue, but you’re within your right to try and renegotiate in order to remain cash positive.

Be creative. For example, if your suppliers won’t extend terms look at them decreasing order requirements when qualifying for discounts.

Keep in mind that the Australian Federal Government has stepped in here to give small businesses further relief from creditor pressure.

For example*:

• A temporary increase in the threshold at which creditors can issue a statutory demand on a company and the time companies have to respond to statutory demands they receive
• A temporary increase in the threshold for a creditor to initiate bankruptcy proceedings, an increase in the time period for debtors to respond to a bankruptcy notice, and extending the period of protection a debtor receives after making a declaration of intention to present a debtor’s petition
• Temporary relief for directors from any personal liability for trading while insolvent

Cut expenditure

Your overheads will need an overhaul. Look at your Income and expenditure with fresh, realistic eyes and see where you can cut.

Get brutal about all unnecessary business spending and seek cheaper alternatives for all supplies and suppliers. Ruthlessly examine your profit-and-loss statements (P&L) to cut all but the most vital expenditure.

Consider new or reinvented revenue streams

Can your business open up new and profitable revenue streams to replace or supplement current sales channels which are unhealthy or unviable?

Is there a new way of doing the same business using technology or a business model update?

Look to online strategies and ecommerce if physical locations are untenable. If your business revolved around travel and physical interaction, seek digital and online alternatives.

Keep on top of your financial reporting

Understanding your financial situation is extremely important. During times of financial stress, it’s even more important to keep on top of your:

• Income and expenditure
• Stock levels
• Debtors and creditors
• Payroll
• Bank feeds

Use cloud accounting tools like Reckon One to make accurate and regular reports on your current financials.

Good decision making and understanding of cash flow comes from timely and accurate financial reporting. Stay on it.

Check for Government support

There’s every chance the federal, or your respective state government, has extended relief packages to your business which are designed to help you survive this pandemic economically.

Make full use of them and educate yourself on the details.

The exact nature of these relief packages changes weekly, so please keep yourself informed by visiting the official sources of truth:

• Business.gov.au
• ATO

*Source:  https://www.business.gov.au/Risk-management/Emergency-management/Coronavirus-information-and-support-for-business/Temporary-relief-for-financially-distressed-businesses