Get started
How to reduce your business debt and improve cash flow

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.

How to address cash flow problems

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.

Cash flow challenge
Spenda’s solutions
  •  More payment flexibility – customers can pay via credit card or their bank account and save their payment preference
  • Improved Integration and customer experience that enables the customer to pay  multiple invoices in a single transaction
  • Faster payment settlement than other providers
  • Low transaction fees (1% up to 75 cents for bank transfers and 1.5% with no cap on credit card payments)
  • Fewer errors – Spenda serves the invoices, and the customer never needs to manually enter a code or customer identification information to complete the payment process
  •  Systems that integrate seamlessly to update your accounting software, stock management system and business management tools
  • Use data to identify and manage customers who consistently pay late
  • Implement just in time inventory management systems
  • Use Spenda eCommerce for all of the tools and systems you need to sell online
  • Automate your payment processing systems, so customers automatically pay on delivery
  • Use Spenda’s platform to find suppliers that offer flexible payments

Let’s look at an example of a pet food distribution business:

Without Spenda Workflow Payments

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.

Workflow payments in practice

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.

Related Articles

Avatar
Common accounts receivable issues and what businesses can do to overcome them

Chasing late invoice payments is a burden for any business, and still, more than half of B2B payments in Australia continue to be processed late, costing businesses, on average, $115 billion every year.

Ola Polczynski
Avatar
Smart practices to help you optimise your credit control and strengthen cash flow

When you’re running a large operation with hundreds of invoices processed each month, the resources required to manage your payments grow quickly, especially when ageing receivables become a problem. While customers may not pay their invoices for various reasons, it happens too often, causing a range of challenges and increased risk.

Adrian Floate
Avatar
How businesses can leverage digital solutions to boost their cash flow and grow

Digital payments helped businesses get paid safely and efficiently throughout the COVID-19 lockdowns and associated restrictions. But as economies reopen many challenges still face businesses including supply chain disruptions, the ‘great resignation’, rising inputs such as fuel, and the expense of reopening. These business challenges make now an opportune time to build on the processes optimised throughout the pandemic, especially across B2B trade.

Spenda
Subscribe to our blog       

Invoice Finance

To learn more about our invoice finance solution, fill out the form below and one of our team will be in touch.