Focusing on cashflow to keep your business moving

Taking time to manage your cashflow is one important way to protect your business during the economic downturn.

Australian Invoice Finance MD, Greg Charlwood, said that the behaviour changes to protect the health and welfare of people will inherently impact business profitability. "While Federal and state government measures will provide some support and stimulus, business conditions are changing daily." AIF is a debtor and invoice finance company that provides cashflow finance support to small-to-medium businesses.

Charlwood said that this is the time to review your assumptions and estimate the impact of falls in business activity, cashflow, and revenue. "Small business owners need to think carefully about alternative potential methods of managing their cashflow financing their day-to-day activities, and ensure they're able to survive in a very different business environment."

What should we be doing?

It's time to take a hard look at your books and expenses, said Charlwood. Understand your debtor days, and the time it takes for your invoices to be paid. Keep a tight rein on expenses, and think about what's essential spending, and what's discretionary. Keep your accounting records up to date so you have timely and accurate information on which to make decisions," he said.

Some businesses have strong long-term prospects but may need some help in the near term however small business loans may be harder to get and shouldn't be relied upon. "Lenders are adjusting their credit criteria, and support from traditional lenders may become less available. Credit insurance may also be harder to secure, and some invoice financiers will only provide funding based on the debtors being credit insured to a credit limit. These limits are likely to be harder to obtain and maintain at current levels."

What options are available

With primary cashflows severely restricted and access to easy lending limited, you will need to have a flexible strategy for accessing additional capital, like a line of credit, as required as the economy moves toward recession. "Alternative sources of credit such as invoice finance can take the pressure off when cashflow is tight, and help cover regular expenses such as ages, utilities bills, and tax obligations," says Charlwood. "Invoice finance is specifically designed to turn your unpaid invoices into cash to pay supplier accounts and other operating expenses."