Getting Your Finances Back on Track
With the downs and ups of the economy in 2020, the year has had an impact on businesses and finance lenders alike.
Some parts of the economy are still struggling in 2021 and there are potentially more issues once JobKeeper is discontinued at the end of March. Access to short to medium term finance could play a major role in the survival of many SMEs.
But before you go down the track of seeking finance…
Let’s look at the major issues that affect business owners and potential answers to those issues:
1. My invoices are slow to be paid.
It is not uncommon for SMEs to have over $20,000 in outstanding invoices. In a survey by East & Partners at the beginning of 2020, they found that the average debtor days, or time it takes to get your invoice paid, is 56 days, which equates to 29% of revenue (on average). That is a lot and a major issue for SMEs! If you are in a similar situation, consider offering a discount (of say 5-10%) for customers that pay on-time.
2. My suppliers are demanding with their payment terms.
The last thing you need is to lose your supplier because of slow payment. It’s hard to pay them without having the cash available, so sit down with your supplier and give them an idea of how slowly your customers are paying you, leaving you stuck in the middle. There may be a solution where your suppliers could be a bit more flexible with your payment terms.
3. Paying your employees on-time is a big stress for many SMEs.
While your suppliers might wait a day or two, employees expect their wages on the day they are due. Some employees live paycheck to paycheck, and paying any later than payday can result in them leaving for a more dependable source of pay. Treat the payment of your employees as a priority as good staff are hard to find.
4. Understanding your Cashflow situation.
Half the battle of getting your finances back on track is to understand your situation. Plan for the future and stay on top of it. Don’t be afraid to ask us for assistance in creating a budget, forecasting and monitoring your cash situation. We do this for some of our clients and can help you as well.
When you do need to look at finance options…
The good news is that things have changed in recent times. With the top tier Banks making it difficult for SME lending over the years, a number of new lending institutions have emerged to support the sector, which has largely been neglected for many years. These new lenders are often more flexible, require less security and can make decisions quite quickly.
One option from these lenders is to provide you with invoice financing, where the lender will forward to you up to 80% of the value of the invoice amount. In some cases they will take responsibility for collecting payments from your customers. One of the great advantages of having your accounts in Xero is that we can feed your financial information directly to some of these SME lenders, meaning we can get a quick response when you need it.
Before going to a lender, however, you may consider offering your customers a discount of 5-10% for paying on time.