Top 10 Tips for better cashflow management (source: FactorONE)

Editor's note: FactorOne is a great working capital lender and they write some very useful articles - and this one has my tips to boot!

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Small and medium-sized businesses are often stretched to breaking point at the end of financial year by slow debtor payments, with average debt turn now taking around 50-60 days, almost double standard trading terms according to Dun & Bradstreet.

Tackling late payments should be the number one priority for your business in the new financial year. Below are 10 ways you can speed up the payment process, strengthen cash flow and improve credit control procedures:

1. Always credit check customers

The first step to avoiding late payment and bad debts is to always credit check potential customers before handing over goods or delivering a service.

My tip: Search the ASIC registers for the customer (companies and corporate trustees only) AND its directors - preferably an historical search and also for PPSRs (don't know what a PPSR is? It's a Register with all an entity's securities over its assets are registered. It is a MUST for many businesses. And PS, consider your own PPS registration for your own goods supplied! Many major suppliers do this as a matter of normal business trading.

2. Get your terms and conditions right

A clear set of terms and conditions can protect you from late or non-payment, limiting your liabilities and providing you with some security.

My tip: use a commercial lawyer - preferably the same firm who will be relying upon to collect your money (self interest at work!).

3. Reconsider payment terms for repeat offenders

It may be worthwhile considering tightening credit terms for serial late payers in order to preserve cash flow. Try to find out why the customer is consistently paying late as you may be able to come to a mutual agreement with them.

My tip: Remind the customer: "Remember when we entered into our terms and conditions, I agreed to supply the products or services to you on time and at the agreed level of quality. You agreed to pay me on time. Have I done what I promised I would do? If so, why have you not done what you promised to do?"

4. Stay on top of payments

Do not delay when sending statements and invoices. If you delay you can’t expect to be paid on time which can significantly damage your cashflow.

My tip: automate the process!!! That's one of the main reasons you use MYOB, Xero or Quicken. They do it for you!

5. Invoice often

Consider changing some of your processes to ensure invoices are sent as quickly as possible after delivery or completion of the job. This might mean moving to weekly invoice processing or sending the invoice with the delivery. Reviewing your IT platform may also be key to streamlining this process.

My tip: invoice daily! My printer does and he gets paid promptly!

6. Invest time to safeguard cash flow

Maintaining good, consistent cash flow is all about knowing exactly what is coming in and going out. This will give you an accurate picture of where the business is going, help identify late payers, control costs and ultimately manage the peaks and troughs in your cash balance.

My tip: if you don't have the money to have a full time CFO and you generate more than $1M in revenue/sales, hire a part-time virtual CFO, whose main job is to give you very good management information. Note: not accounting information, MANAGEMENT information (i.e. it is used by management not by accountants!)

7. Keep close to your customers

Get to know your customers better. It is a good idea to keep an eye on customers’ payment trends to spot any potential problems before they become major issues.

My tip: if you only deal with a customer when they want to buy from you, chances are you are leaving a relationship and deals on the table for others to cherry pick at their leisure.

8. Have the right attitude

When faced with a late payer, politely but firmly ask for payment to be made.

My tip: this is not war (not yet anyway!). Respect, civility and empathy go a long way to resolving 99% of late payers. The other 1%? Do what you wish! :)

9. Understand your rights

If all else fails, Australian business owners and managers can consider the various means of legal debt recovery for delinquent debts.

My tip: anticipate you will need to spend up to $5K to go all the way to enforce collection (assuming the debt is not disputed). So if you can't afford $5K or the debt is not worth spending $5K, then be careful what you wish for....

10. Consider more flexible funding arrangements

Work smarter, not harder this coming financial year by reviewing your funding to ensure that it continues to meet the needs of your business. Invoice financing or debtor finance is a proven way of releasing cash locked up in receivables to then reinvest or meet creditors, wages and tax.

My tip: we are happy to have a no obligations free chat about the financial needs of you and your business. We can then introduce you to great lenders such as FactorONE!