Tradies: How to avoid a cash flow crisis
Concerned about your cash flow? You’re not the only one. The challenge of ensuring you’re bringing in more money than you’re spending at any one time is the key issue affecting Australian tradies today. In fact, 90% of business failures¹ are caused by poor cash flow. Staying on top of your finances isn’t easy either – 44% of accountants agreed tradies are the worst offenders² when it comes to managing their books.
So, what can you do to make sure you stay out of the red and in control?
1. Set shorter payment terms
While 30-day payment terms are the norm, there’s no reason why you shouldn’t request faster payment terms for some projects or clients. It’s reasonable to request payment in 14 and even seven days – just make sure you negotiate clear payment terms before you start work. Incentivising pre-payment can’t hurt either, such as offering a trade discount for prompt payment. For bigger projects, don’t be afraid to ask for a down payment, suggest a regular payment schedule or periodic progress payments in line with your major expenses
2. Make paying easy
Offering your customers multiple payment options can improve your chances of them coughing up quickly. As well as allowing cash and bank transfers, offering mobile payments means your customers can pay you before you leave the site. Accounting software packages, like QuickBooks Online, let you send payment-enabled invoices on the go, and, when integrated with mobile payment apps like Square, turn your mobile phone into a mobile payment device.
3. Chase up late payments
Late payments are a perennial problem for small business in Australia. The average small business is owed $13,000 as a result of unpaid invoices at any one time and spends up to 12 days chasing invoices each year.
So, invoice your customers as soon as you’ve completed the agreed work. It’s a tough gig, we know – when the job book’s full, how can you find the time to invoice and chase late-paying customers? Accounting software packages like QuickBooks Online let you see who has viewed your invoices and when they are overdue, and even automate timely email invoice reminders for you.
4. Cut your costs
If you’re struggling with cash flow, cutting or delaying expenses can help. This could mean finding better value suppliers or reducing outlays on everything from paper clips to work tools. Leasing equipment and vehicles, cutting back on utilities, and outsourcing non-essential functions are examples of simple ways you can curb your costs.
5. Get a working capital loan
For times when you just can’t bridge the gap, an alternative lending option, like invoice finance, can help you to pay back wages, purchase inventory, or invest in operations, based on amounts outstanding from customers.
A healthy cash flow is critical when you’re a tradie – so don’t let it be your downfall. Start with these easy tips to keep the money coming in, your business viable, and your money worries at bay.
Learn more about how QuickBooks Online can help you hold onto your cash.