3.9.16 – How Success Can Kill Your Business

As odd as it sounds, more sales, greater revenue and faster growth can pose real dangers to Australian businesses in 2015.

As your business grows, you will need to find money to pay for more staff, bigger facilities and increased production costs.

If your business expands rapidly and the growth is largely unplanned, you’ll risk overtrading by not having enough working capital (cash for day-to-day expenses) to fulfil your expanding orders.

The reason is that growth usually means that considerable and sudden investment is needed, and the business can come unstuck when they have to wait months to see a cash return.

Dealing with cash shortages

There are number of immediate ways to fund unexpected cash shortages, including:

  • Collecting outstanding debts
  • Increasing prices
  • Borrowing money – for example, by refinancing or arranging an overdraft
  • Negotiating better payment terms with suppliers – for example, delaying payment in exchange for regular or bigger orders
  • Negotiating better payment terms with customers – for example, by offering discounts for prompt payment, encouraging automated payments or insisting on deposits first

Reducing costs

An equally effective way of increasing your liquidity is to reduce or avoid any unnecessary costs to your business by:

  • Taking no unnecessary money out of the business while its cash flow is limited
  • Opting to lease or hire-purchase new premises or machinery rather than buy outright and incur more debt
  • Delaying any increases in salaries
  • Reducing overheads – for example, substituting business travel and face-to-face meetings with conference calls.

Immediate solutions

Obviously, when times are tough not everything works the way you want it, so then you explore alternative options for managing your cash flow.

These may include flexible invoice financing or factoring.

There are clear differences between factoring and invoice financing.

Factoring is a more of a locked-in service for companies that don’t have an in-house credit control function. It involves outsourcing all of your credit control processes to the factoring provider, allowing them to chase down outstanding payments.  Furthermore, it requires your entire debtor book to be factored with the factoring provider.

Some business owners may be reluctant to go down this route, as it means relinquishing control on a key part of your company’s day-to-day operations and they may not need or want to fund every invoice to every debtor.

Invoice Finance is a better option for many Australian SMEs because it only assesses the suitability of the particular invoices you want to sell – not an entire debtor book.

There are usually less service fees with invoice financing, and unlike factoring, there are no long-term contracts.

Free Expert Advice

If invoice finance is a solution you’re considering for your business, use the Invoice Market’s independent expertise and find out more about how it could benefit you and your business.

Help us to help you determine the best way forward. We specialise with supporting small and medium businesses.