Is 'cash flow gap' an issue for you?
How quickly are you collecting payments from customers? Are you getting the working capital you need to run your business, or is there a "gap" to fill?
When you make a sale, how quickly do you collect payment from your customer? Meanwhile, how quickly do you need cash for paying your own expenses, such as for wages, electricity, tenancy costs and raw materials?
There are plenty of companies, for example, that collect payments from customers within 60 days, meanwhile, they have suppliers that expect to be paid for materials within 30 days. It's not that these companies can't afford the materials they need - it's just a matter of the timing being a little bit off.
We call this the ‘cash flow gap’.
There's a gap between when they have cash in hand and when they need it - which leads many business leaders to search for stopgap solutions.
Is "cash flow gap" an issue for you?
‘Cash flow Gap’ may be an issue if:
- Your clients do not pay within their 30 day credit terms or
- You offer clients extended credit terms (60 or 90 days)
If you're having trouble collecting payments within the 30 day credit term, you're absolutely not alone. In fact, according to The West Australian, more than half of small businesses in WA are dealing with late payments.
This theme is also present on the east coast, prompting the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) to call on the government to introduce legislation to set a maximum payment time for big businesses to pay their small business suppliers.
While the legislation is being debated, however, small business owners are being put under undue cash flow pressure, stress and anxiety.
Finding a solution
Whilst some small businesses get by with their bank overdraft facility to fill the ‘cash flow gap’, this often leaves them unable to expand their operations, as raising overdraft limits requires property security and takes (a long) time.
So what's an alternative solution to the "cash flow gap," then?
The answer may well be debtor finance. With debtor finance, businesses can immediately access up to 85 per cent of the values of their unpaid invoices. So whilst the client may not pay for another 60 or 90 days, the business can move forward with their business operations as if the payment had come through the next day.
You can then use this money to repay ATO debt, restructure your business or simply build up more working capital that you can invest in growth.
Get in touch with Classic Funding Group and learn more about the possibilities.