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Make or Break: Seven Ways to Improve your Business Cash Flow

The New Rules of Money

Running your own business comes with a wide variety of challenges, but one of the biggest is managing cash flow, the lifeblood of the company. Yet businesses often underestimate its importance, instead thinking that as long as they are busy earning revenue then their business will survive and grow. However with regular outgoings such as wages, rent, stock and utilities to pay, without adequate cash flow their businesses may stagnate and fail.

This is especially important for businesses in Asia, which in a global survey by PwC, was found to be the second-worst performing region in terms of net working capital. This means that when compared globally, businesses in the region are the second slowest at converting their working capital into cash, indicating that company money is tied up for extended periods, negatively impacting day-to-day operations and growth. While this finding is taken from an average of companies operating across the region, it indicates that companies in Asia have a significant opportunity to improve and create greater business value from the resulting liquidity.

Man making contactless payment at cashier

Visa is one of the companies that has been driving developments in payment methods and solutions with its partners to help businesses to be competitive in the digital era. Some of the new solutions for businesses include timesaving apps, leveraging credit and simplifying payment experiences.

Here are seven approaches to consider:

1. Maintain updated cash flow forecasts

Based on your previous sales, create and maintain a forecast of the likely peaks and troughs in your sales and expenditure. By predicting your expected expenditure such as rent, wages, equipment and taxes against your expected incoming cash from sales, you will be able to identify when your business will need additional capital. Online accounting tools such as Xero and QuickBooks can help prepare these forecasts automatically, allowing you to effectively monitor and better manage your cash flow in real-time.

2. Streamline invoicing

Postponing the creation and sending of invoices, in favour of focusing on more immediate business priorities, has a direct negative impact on Days Sales Outstanding (DSO), meaning it will take longer to collect your receivables. This issue is exacerbated if you still rely on sending invoices in hardcopy, which can take many days to arrive and further delay receipt of payment. Your business misses the opportunity to leverage and potentially reinvest revenue earned, which would generate greater value for your business. There are invoicing apps to tackle these challenges such as Invoice2go, which creates and sends invoices to your customers by email with just a few clicks. These e-invoices also include a payment button, meaning your customers can easily pay by card just by clicking a link.

3. Define your payment terms

When you issue an invoice, ensure that your payment terms are clearly communicated. Should a customer fail to make payment by the due date, have a follow-up process in place. Solutions such as Invoice2go can also help by notifying you when customers have opened your invoice email and again when payment is overdue.

4. Move away from accepting cheques

The usage of cheques around the world is falling as companies and even countries realise that it is one of the most inefficient payment methods in terms of cost and speed of payment. Singapore has a government-driven initiative to make the country cheque-free by 2025. Yet some companies continue to use cheques out of habit and a lack of awareness of a suitable digital alternative. Enabling your business to accept payment by card or bank transfer will allow you to be paid faster than by cheque, improving your cash flow and modernising your brand perception. You can also incentivise customers to change their payment method by offering a discount, for example: “Receive a 3 per cent discount on this invoice if you pay within seven days.”

5. Modernise your point of sale

With the growth in mobile and card payments, customers are getting used to electronic payments. This will have a growing impact on businesses that are unable to accept new payment methods. Buying a payment terminal will help address this problem, allowing you to quickly start accepting payments via credit and debit card, contactless and devices with near-field communication (NFC). With this enabled, your customers will be able to pay you faster, no longer relying on cash, whilst also saving you time, thanks to payments being settled electronically with your bank.

6. Accept payments everywhere

In many parts of Asia when ordering online, customers prefer to see the products before paying. Cash on delivery is widely used option to address this customer need. While this option can attract new customers to your business, there are many hidden costs related to cash. Non-delivery rates are high due to the lack of cash at hand or change, cash can be lost or stolen, and manual reconciliation and settlement takes time. Implementing a mobile POS solution to accept card and mobile payments will help overcome many of the challenges that can affect negatively your cash flow.

7. Leverage interest free credit

In some instances and for certain suppliers, one option available may be payment using credit cards. The financial institution that issues your credit card can provide advice on whether this is a viable option, and may provide up to 55 days interest-free credit, positively impacting your cash flow. As with all credit cards, care will be needed scheduling repayments to avoid late credit card repayment fees and interest charges. Also, consider talking to your suppliers to see whether they can provide a discount in return for early payment, helping reduce your outgoings and benefit your business.

Powering Businesses Everywhere

Visa and its partners like Xero and QuickBooks work together seamlessly, offering business leaders greater visibility over their cash flow and removing many of the time-consuming activities involved in running a business. Find out what else Visa can do to help you in streamlining your business processes.

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