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August 5, 2016

As trade payment times increase, businesses are waiting almost 45 days on average for invoices to be paid. A leading national financier of startups and SMEs has warned that small businesses need to stay on top of cash flow issues to avoid nasty consequences of delayed payment.

The latest Trade Payments Analysis from Dun & Bradstreet shows businesses are waiting an average of 44.9 days for payment - a long time for a small business to sweat on being paid.

Leading national financier of startups and SMEs, FactorONE, deals with hundreds of Australian small businesses who are seeking to relieve the financial pressure that comes with paying staff and suppliers while waiting for customers to settle invoices.

FactorONE’s general manager, Greg Charlwood, has suggested three steps small businesses can take to improve cash flow.

“Slow payment not only impacts on your ability to pay suppliers on time, it also reduces your ability to grow the business,” Mr Charlwood said.

“At a time when Dun & Bradstreet analysis is showing an almost 37 percent increase in the number of startups in Australia over the previous quarter, it’s important for new small businesses to have rigorous cash flow systems in place, and for existing businesses to run a fresh eye over their finance and invoicing systems.”

Tips to help SMEs with cashflow

1.New startup owners and existing SMEs should take a look at how they finance their business and whether it is the most effective way to help them thrive, not just survive. 

“Many enterprises are moving away from overdrafts and turning to invoice finance, because facility limits are based on accounts receivable balances, so the amount of cash available grows in line with sales,” Mr Charlwood said.

“What this means is a small business receives ongoing access to the funds it needs to complete the next order, without being forced to to wait 30, 45 days or more for customers’ payments. 

“Most invoice finance facilities don’t require real estate security so your family home to secure the borrowing facilities required to run your business effectively.”

2.Simplify your invoicing system. "I know so many small businesses who are amazed at the difference it makes to payment rates when they make their invoices easy to pay,” he said.

“Don’t allow confusion to be an excuse for clients not paying invoices. 

“We recommend that the paperwork must clearly state all relevant details, including customer order reference, date payment is due, your bank details, a full description of the goods or services provided and a name and number of who to contact with queries. 

“It’s also wise to issue the invoice as soon as a job is done or goods are despatched, rather than waiting until the end of the month," Mr Charlwood said.

3.Do your research and due diligence on new and existing customers. 

“There’s no profit in a sale unless you get paid, and paid in a timely manner.” Mr Charlwood said. 

“At least every month or so, SMEs should be running credit checks on potential and current customers.”

Mr Charlwood said one of the benefits for SMEs in using factoring, or invoice finance, is that they can then access a team of professionals with expertise in managing accounts receivable – and whose primary motivation is to reduce debtor days.

“I’ve never yet met a small business owner whose passion is following up unpaid invoices – handing this over to the experts allows the business owner to concentrate on what they love, and what they do best.

“Even if an invoice is only say five days overdue, this equates to extra interest payments and it all adds up in ways that may small businesses cannot afford.

“There is a smarter way for Australian SMEs to manage cash flow.”

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