For small business owners, cash flow problems are a common and dangerous threat to the survival of their companies. In fact, many identify it as their number one pain point, writes Aaron Fidler, Head of Retail & Commerce at Mastercard Australia.
COVID-19’s impact on store traffic hasn’t made things easier, either. In June, three in four small businesses in Australia suffered a 75 per cent decline in revenue as a result of pandemic. This is on top of the already challenging landscape which sees just over 50 per cent of small businesses continue operating for more than four years.
But the small business sector, which many deem as the ‘backbone’ to the Australian economy, is fast growing, with revenue forecast to reach $12.9 billion by 2025. As such, it presents many opportunities for those who dedicate themselves to pursuing a small business venture.
Due to COVID-19, there’s considerable assistance, advice and support available to small businesses. In September, the government announced an $800 million package to support the digitisation of business, with a proportion of this being dedicated to e-invoicing support.
In addition, Mastercard’s Getting Back to Small Business initiative will offer roughly two million SMEs access to approximately $5,000 worth of tools and services each, alongside a raft of educational resources to help them go digital, between now and early 2021.
But even without financial help, there are other ways small businesses can create a healthy cash flow forecast during these difficult times.
Here are a few ways to improve cash flow that can help keep business in the black
1. Get business credit cards to cushion your cash flow
A credit card can benefit small businesses when cash flow is interrupted or the economic future is unclear, as many are finding out during COVID-19.
For example, Mastercard offers simple commercial card solutions whereby a buyer can use their credit card cycle to effectively pay suppliers quickly, but still maintain the same or increase their DPO.
Similarly, recently launched fintech, Archa, offers digital credit cards to SMEs that enable them to more efficiently access capital and run their business.
However, before charging any business expenses to a credit card, it’s good to know exactly how much revenue is expected to come in over the next 15, 30, 60 and 90 days.
2. Monitor cash flow regularly and stay on top of invoicing
This may seem obvious, but with many SME owners focusing their energy on pressing priorities such as chasing late payments, managing staff or ensuring inventory levels, simple book-keeping can get left behind.
A good cash flow forecast will help any small businesses monitor when money is coming in and out. It can help identify when extra cash will be available or when the business is likely to experience shortages, and also provides warning signs to avoid future financial problems
3. Automate and streamline payments to suppliers
With more Australians spending online than ever before, simplifying supplier payments with enhanced controls will increase security. For example, MYOB allows bulk payments to suppliers and even employee payroll payments to be made using your credit card, even to businesses who prefer not to accept cards. This helps ensure payments are streamlined and secure.
Likewise, In Control helps streamline payments by enabling users to create and manage unique, dynamically generated virtual account numbers in order to make payments, with maximum security.
4. Get paid quicker
New mobile apps that use a smartphone or tablet to accept payment by credit or debit cards, allow small businesses to get paid on the spot, and prevent those cash flow hold-ups.
Using other electronic payment methods, such as through a card or peer-to-peer payment service, provide a similar service to paying an invoice on the due day. The benefit is speed; electronic payments allow payments to be made on time.
For example, Mastercard recently partnered with Quest payment systems which launched a software-only tap-on-phone payments solution, Airpay TAP, offering merchants a simple and cost-effective contactless payment acceptance solution by using the Android smart phone they already own.
Mastercard has also begun the roll out of Mastercard SEND, a new solution that enables PayPal customers to cash out funds from their PayPal wallets to their Mastercard cards in real-time. This provides a convenient and secure way for customers to get paid who typically find it easier to access their card information than their bank account.
Always have buffer money
Cash flow shortages are often difficult to predict, particularly if they’re caused by a large unexpected expense or uncharacteristically slow payments from a major customer. Small businesses should always have a plan in place to access additional capital if needed.
It’s recommended to have three months’ worth of expenses stored in an emergency fund.
Cash is always king for a business but during challenging trading periods such as COVID-19, managing the flow or money in and out becomes even more crucial.
With evident support combined with the resilient nature of the small business community, who make up 98 per cent of the Australian landscape, it’s clear they will bounce back from a rough and unpredictable year and succeed in the new normal.
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