Spenda 23 February - 6 min read
Many things need to be operating successfully for a profitable business, but the most important factor is cash flow management. Without adequate cash flow, it becomes difficult to pay suppliers, manage stock and cover the everyday expenses of running a business. Further, growing business debt, and poor cash flow can result in being unable to continue trading. Fortunately, there are many things you can do to reduce your business debt and improve cash flow if you’re willing to rethink how you approach payments and other systems in your business.
This article outlines how to reduce your business debt* and improve cash flow by making changes across your business, from automating your payment processes to better stock management.
What is cash flow?
Cash flow is the net cash moving in and out of your business. It’s important you have effective cash flow management practices to make sure your business keeps running smoothly. Your business may sell profitable products and services, but you can’t meet the financial commitments of running and growing a business without adequate cash flow.
Managing small business cash flow effectively is critical for business owners and the broader economy too. Despite the cash flow boosts and stimulus offered to businesses around Australia over the last 12 months, it doesn’t help with addressing the cause of increasing business debt and cash flow problems.
Not only do you need to understand your business’s financial position at all times with cash flow forecasting and modelling, but you also need to address the underlying financial problems in your business. Spenda’s suite of products helps wholesale distribution businesses to reduce debt and address cash flow problems.
Below we’ve outlined some of the common cash flow challenges that businesses face and how Spenda provides a solution to these challenges.
Let’s look at an example of a pet food distribution business:
Aussie Organics Pet Food sells to hundreds of pet supply stores and sources and makes all its products in Australia. Most of the business’s customers are on 30-day payment terms, with invoices often paid late.
As a business with high overheads, from paying staff and suppliers, to the operational costs associated with packaging, warehousing and distributing their product, Aussie Organics Pet Food, has almost exhausted the line of credit they have with their bank. Several large customer accounts are overdue, and the warehouse is filled with ageing stock that will soon expire. If some large invoices aren’t paid soon, and stock isn’t sold, the business won’t have the cash flow to continue trading. Not only would closing down the business affect everyone who works for Aussie Organics Pet Food, but the other companies it works with, such as food and packaging suppliers, will lose business too. It creates a flow-on effect, which impacts other SMEs.
With Spenda, the business offers customers a range of payment methods and options which allow customers to pay invoices in smaller amounts, instead of waiting for invoices to be paid in full in one transaction.
To address the business’s overdue accounts, Aussie Organics Pet Food provides late-paying customers with options to start paying their overdue bills in instalments. The business will have the ability to choose the payment terms it needs for all future invoices, which improves cash flow management and deters the potential of onboarding problem customers in the first place.
By implementing an inventory management system, Aussie Organics Pet Food, accurately forecasts its sales each quarter, with a review each month to see how the business is tracking. Alerts are set up to move stock that’s at risk of not selling, and sales data informs the business which products are successful and the products that should be discontinued.
Aussie Organics Pet Food experiences over a year of positive cash flow growth, has hundreds of happy customers that are paying on time, and reduces its business debt to just 10 per cent of its gross revenue. With this strong financial position, the business owner can decide whether to keep growing, continue with current sales levels or think about the next stage of the business, perhaps sale or acquisition of another business.
Cash flow problems in wholesale distribution businesses
Common cash flow problems in wholesale distribution businesses include long payment terms, overdue payments, high overheads, inaccurate sales forecasts, low profit margins and overspending. As an industry focused on B2B accounts, your payment terms can become a form of financing for your customers if it’s not carefully managed. For this reason, wholesale distribution businesses need to have strong systems and processes around invoicing and payments. Spenda will provide your business with the capability to automate your invoicing and payment processes, which will allow you to improve your cash flow by getting paid faster, and identifying and closely managing problem customers.
Stock management is also critical for wholesale distribution businesses. Without strong cash flow management and sales data, your business may risk holding aged stock or running out of stock, of which both scenarios will impact sales. Products stored in a warehouse lock up your working capital, and running out of stock will reduce your sales. Wholesale distribution businesses need to implement inventory management systems to establish a just in time ordering system that maintains healthy cash flow.
Use Spenda to reduce your business debt and improve your cash flow
Spenda’s suite of products helps business owners to take control of their cash flow and improve their systems and processes. Working with you to build the foundations for stable, long-term growth, Spenda seamlessly integrates with the other systems in your business so you can spend more time growing your business and less time stressing about your business’s finances.
Contact us to learn more about how Spenda can help improve your business’s cash flow.
*This article is for general information purposes only. Consult a qualified financial advisor regarding any changes to or decisions about your business’s finances.
The emergence of options such as buy now, pay later (BNPL) services was first introduced to business to consumer (B2C) transactions, giving customers the ability to access products and services they need today while paying at a later date or over a series of instalments.
As a supplier, wholesaler or distributor in the Fast Moving Consumer Goods (FMCG) sector, your business likely deals with a high volume of B2B payments.
E-invoicing has transformed how businesses send and receive invoices. It automates the exchange of invoice information directly between a supplier’s and a customer’s accounting software.
© 2021 Spenda. All rights reserved