One of the most effective policies I instigated a long time ago at Your Business Angels involves paying our tax obligations weekly. We also make sure that all our monthly contracts (mostly media) are paid every week as well.
In addition, we ask our clients to pay our fees weekly through ezidebit. For our clients these small bite size amounts seem easier to digest, and it suits the way we pay our creditors. Sure it doesn’t always work, but essentially it’s the key tactic to keeping our business cash flow moving along.
When a client comes to us with problems paou outing creditors I ask them “how would you eat an elephant?”. The answer of course is slice by slice (I wish I could remember where I first heard that!). I then explain that like eating an elephant, it’s best to start with a small-and-often payment plan to reduce your debt. It doesn’t matter who the creditor is, it’s important that you begin making the effort.
Now, I know that here is where I should be all threatening and start talking about insolvency. I should be defining insolvency for you. The truth is, that if the official definition of insolvency[1] in Australia for both cash and capital was applied to all Australian businesses then most Australian businesses would disappear.
Instead, let me give you some basic ideas for dealing with your business debt when your cash flow is looking poor in the short term (if you have medium to long term cash flow problems then we really need to have a chat):
- Acknowledge to yourself you can’t pay everyone immediately.
- Start paying something – the creditor will probably get angry, reject the offer, but keep paying anyway. You will be amazed how quickly creditors quieten down once they start to receive regular payments. The amounts that you are paying may in the first instance be small and almost insulting but regular payments will at least begin the journey to repay your creditor
- Always make a payment with any offer you make. Don’t wait until it has been rejected (it probably will be), send the first cheque or deposit funds directly into your creditor’s accounts with any offer, and “keep the promise” (that is, keep paying).
- Never make an offer that you can’t keep. That is why we always recommend that you start the effort of payment as soon as you can with a small payment.
- This applies to the ATO. Start paying the ATO little and often. A case manager will see the payments coming through on their running balance account and perhaps call someone else.
- Look at your market – can you charge more? You have to get the extra cash from somewhere and perhaps you are letting your clients of the hook. Remember you don’t have to be too competitive, just competitive enough.
Once you have developed some faith with your creditor, then discuss the future with them. They have been good enough to extend credit to you and so it’s important that you respect them and bring them back to being a supplier.
The same will apply to debts that are owed to you. If you know a business is going to struggle to pay you, then subscribe to ezidebit, send the form to your client and have them start repaying you in the same manner.
We advise that you never ever give credit to a customer.
There are lots of reasons that your business may struggle with cash flow. At Your Business Angels we have a number of ideas that help you through this.
Sometimes it’s a case of adapting your business model. Cash flow is going to be tough for Australian SME’s for a long time and there is a lot to consider.
If you are having problems, consider contacting Your Business Angels and we may be able to give you the advice you need, arrange short term funding or help with a remodel of the business so that you can move forward with a better cash flow.
Happy trading
[1] To find out more about insolvency, visit
Your Business Angels FAQ section or the Australian Government’s
Insolvency and Trustee Service Australia