To keep control of your cashflow, try to keep your money in the bank as long as possible rather than paying invoices as soon as they arrive.
Thornton says it comes down to a basic premise of minimising the times it takes for customers to pay you and maximising the time it takes to pay suppliers and your costs, but within limits not at the detriment of late fees.
“It’s important to pay bills on time but there’s no reason you can’t renegotiate supply terms,” says Baird.
“If your accounts are 30 days, pay them in 30 days not 10, if things are tight ask for 60 days instead of 30 and be upfront and honest about it to keep the relationship alive.”
When entrepreneur Michael Doyle faced a cashflow crisis he found that open communication with clients was the way to go.
“You just have to go to them and be honest, and speak to them on a personal level. You really just have to explain to them that you’re running a small business, and that some suppliers are going to be coming in at different points,” he said.
Doyle, founder of the Website Marketing Group, managed to survive after being a week away from being unable to pay staff.
In order to reduce costs, Baird recommends doing a line-by-line analysis of your profit and loss statements and then shopping around to save money on things like phone and power bills and banking fees.
“All those line items that tend not to get close attention can get you a 10% to 20% reduction in some of those costs.”
Thornton recommends reviewing the methods you use to accept payments to make sure they are as speedy as possible.
“Try accepting online payments, electronic funds payments from customers as well as card sales and offering credit card as an option to speed up the process rather than the traditional cheque,” he says.
Debtor financing, also known as invoice financing or factoring, is a potential way to free up some cash.
It allows a business to quickly convert its unpaid invoices into cash, and is in effect a line of credit extended against the business’ receivables, which is often one of the largest current assets on the balance sheet.
According to the Institute for Factors and Discounters of Australia and New Zealand, debtor finance helped fund over $62 billion in business-to-business sales nationally in the 12 months to June 2012.
Although it declined slightly in the immediate aftermath of the GFC, volumes of debtor finance are rebuilding strongly.
Gary Green, director of Bibby Financial Services Australia, said in a statement that in a typical facility the lender will advance between 60-80% of the face value of the business’ invoices within 24 hours, with the balance returned to the client on payment by the debtor.
“In some cases the lender also provides an accounts receivable service, helping to save time and accounts receivable cost,” he said.
“A unique feature of debtor finance is that traditional real estate security is not required, which can be a critical advantage in an environment of softening house prices.”
Green conceded debtor financing can be slightly more expensive than other funding facilities on a straight comparison of interest rates.
“But this comparison ignores the often significant benefits of strong cashflow to the business – from more streamlined operations, less reliance on discounts for prompt payment, reduced accounts receivable cost and the ability to take advantage of opportunities more quickly,” he said.
Baird says debtor financing can be a good option for some businesses and estimates that for a $500,000 debtor ledger you could raise up to $300,000 in additional cash by signing up to a debtor finance facility.
He says debtor finance can be a great tool to free up some cash, especially for a growing business, but warns it is not for everyone.
“But the problem we find is they are complicated and are quite expensive and resource intensive.”
Cara Waters is a former SmartCompany editor. Previously, Cara was a senior reporter for the Financial Times’ website and worked for The Sunday Times in London.
