Keep cash flowing and production lines running

By Wayne Smith

Cash has always been king in business, but never more so than in the current economic

When we talk about cash in this context we’re referring to the funds we have available to meet ongoing costs. Put simply, working capital.

So what impacts on working capital and how? Dealing with the obvious ones first, profits generate cash, provided they are not all tied up in receivables and stock, particularly
obsolete stock which may never sell, while losses eat into cash.

But what about the less obvious triggers, namely payables and receivables. Movements
in the average days taken to pay creditors or to collect debtors can have a significant impact on working capital.

For example, a business turning over $5m which has debtors taking an average of 50
days to pay, will have a receivables ledger of $685K.

If those debtors took an extra 15 days to pay, the ledger would increase to $893K,
creating a hole in the working capital of $208K.

A logical response might be to slow down on payments to creditors, but that isn’t always
possible and with payables ledger typically being 30 per cent to 50 per cent lower than
receivables, taking an extra 15 days credit off suppliers may only recoup around $125,000.

This is the kind of problem many businesses are facing at the current time and typical
responses range from negotiating increased credit line with new or existing financiers to
running up unauthorised borrowings with current financiers or the ATO.

A much better solution is Cashflow Finance, with a range of facilities available from Confidential Invoice Discounting to Full Receivables Ledger management, businesses
are able to raise up to 85 per cent of the value of their outstanding invoices on a rolling basis.

This minimises the impact of customers taking longer to pay, enabling businesses to keep their own payments up to date, thereby ensuring continuity of supply and labour in these difficult times.

*Wayne Smith is general manager of Cashflow Finance Australia

Cashflow Finance
Ph: 07 3717 1213