As the fallout from the novel Coronavirus (COVID-19) outbreak continues to devastate the Australian economy, many businesses are searching for ways to demonstrate their resilience and continue surviving through these challenging times. However, with businesses across the country experiencing substantial declines in sales or even a complete suspension of operations, many are facing significant insolvency risks due to ongoing cashflow issues.
Cashflow is a key concern for businesses during normal trading conditions. Now, with the future of the economy unknown, finding ways to manage the flow of cash through your business has never been more important.
The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Review of payment terms, times and practices March 2019 report found that flow-on effects from late payments include one in four small to medium enterprises (SMEs) suffering difficulties in meeting tax obligations on time and one in five unable to expand their business or take on additional work.
As a company director, it’s important to keep on top of your cash during these uncertain times to ensure your business remains profitable now and into the future.
We’ve put together the top 5 ways to get your cash flowing post-COVID-19.
1. Invoice Immediately
Sales and invoices are the lifeblood of a small business. MarketInvoice’s 2016 The State of Late Payments report found that out of 80 countries surveyed, Australia was the worst for paying invoices on time with 60 per cent of invoices paid late.
Once you have completed a job for your customer, it’s important to send out the invoice immediately. The quicker your send it out, the faster the cash comes in.
With COVID-19’s huge impact on the Australian economy, your customers may also be struggling financially – which means it may be difficult for them to pay you straight away. In these cases, asking for a partial payment of the invoice upfront with the balance paid out in instalments may help get your cash flowing quicker.
2. Offer Alternative Payment Options and Flexible Payment Terms
Offering alternative payment options may help your customers pay quicker. This could include introducing online payments (such as Paypal), or giving your customers the option to pay by direct debit or EFTPOS. Choosing a payment method that your customers prefer will make them more likely to pay on time.
You could also consider a recurring payment arrangement with a partial up-front fee. For example, giving customers the opportunity to pay 50 per cent upfront with the rest paid weekly over a period of four weeks is a great way to mitigate late payment issues, makes invoicing easy and allows you to collect payments on time without chasing down customers.
One of the most effective ways to get customers to pay on time is to offer them incentives. This could include offering a discount to customers who pay their invoices before a certain time, such as a 2% discount if the invoice is paid within 7 days or by its due date. You could also offer a gift certificate or a credit on future orders. Monitoring how your incentivise impacts your customers’ payment timeframes and will allow you to make any adjustments to achieve your payment terms to suit your cash cycle.
4. Send Automated Payment Reminders
Reminding your customers when their invoices are due is key to being paid on time. Set up automatic invoice reminders with your accounting system to remove the administrative burden of chasing late payments. Consider sending a friendly reminder a few days before the invoice is due to be paid, in addition to follow-ups on the due date and once an invoice is late.
5. Chase Customers for Payment
Maintaining a healthy cashflow is essential to the survival of your business and its success. So when customers don’t pay up, it’s important to chase them for payment.
If you’ve sent out multiple automated payment reminders, attempted to call the client and your account still hasn’t been paid, it may be appropriate to send the customer a letter of demand. A letter of demand provides you with the opportunity to put your concerns in writing and allows your customer to pay up before you take further action against them.
Generally, the next step to chase customers for payment would be:
- Send companies that owe you money a Statutory Demand or, if the debt is disputed, apply to the court for judgement.
- For individual debtors, including sole traders, you're required to file a claim at court to obtain judgement before pursuing bankruptcy proceedings.
Assuming your customers trade as a company, a Statutory Demand gives them 21 days to either pay the debt in full or risk being forced to wind-up. However, due to COVID-19, the Australian Government has made temporary changes to the insolvency laws which, in essence, prevent you from enforcing payment of debts through a Statutory Demand until 25 September 2020.
The temporary changes, applying from 25 March 2020 for a period of 6 months, you can only issue a Statutory Demand for debts over $20,000 and companies will have 6 months to respond to the Statutory Demand instead of just 21 days. From the end of September 2020, it’s expected that a significant number of Statutory Demands will be issued to businesses which have relied on their suppliers to keep going since March 2020.
Get On Top of Your Cash today
If you’re having trouble keeping the cash flowing in your company due to the COVID-19 pandemic, it’s time to seek help from a professional. Don’t wait to September 2020 to receive a Statutory Demand.
Our business debt specialists at Lanyana Financial Group have years of experience helping Australian businesses regain financial control and return to profitability. Contact our team today on 1800 534 534 for a free no-obligation consultation.
First published on Revive Financial.