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Managing sole trader cash flows

Published On
1 January 2022
Grow your business

Why are cash flows important?

Managing cash flows is one of the most essential parts of any business. In fact, failure to adequately manage cash flows and finances is a lead indicator of why Sole Trading businesses become insolvent. The Australian Bureau of Statistics (ABS) estimates that 40% of Australian Businesses fail in their first five years of trading due to failures in financial management. 

Your business makes money from customers. You spend money on expenses that keep your business moving. Often, the balance between these two is delicate, and can even lead to successful businesses with large amounts of revenue failing. 

Cash is the lifeblood of any business especially in slow economic times, and it’s essential that your business continues to generate enough money from your day-to-day operations to cover your outgoings. Without enough positive cash incomings, your business will find it impossible to perform activities such as paying suppliers or purchasing the materials you need to run your business.

Some businesses can’t see the wood for the trees when it comes to cash flow management. 

What are cash flows?

  • All the cash either in paper money or in your bank account that comes in or out of the business]
  • Cashflows can be positive (i.e. you receive money) or negative (i.e. you pay money)

The aim is to receive more money than what you need to pay!

What can you do to improve your cash situation?

Reduce your payment timelines from customers

Late payments from customers is a leading factor of poor cash management. Current statistics are suggesting that small businesses in Australia are:

  • Collectively owed $26 billion in unpaid invoices at any one time (around $13,200 each!)
  • Roughly 20% of overdue invoices are due to errors, including being sent to the wrong customer.

The key to manage your cash flows comes down to timing. When do you get paid and when do you have to pay others? 

Cash Flow Explained:

Cashflow for sole traders

It sounds simple, but in reality, this is one of the most critical parts of managing your business.

As a small business owner, life will be a lot less stressful if your customers pay you faster.

Here is a collection of tips to speed up the process of getting paid – which can dramatically improve your cash-flow.

  • Offer discounts to your customers for early payments.
  • Send invoices out immediately after performing a job. Sole has enabled you to do this with the ability to schedule future and recurring invoices to reduce your administrative time.
  • Use Electronic Payments. Sole has integrated with Instant Pay which can help you to speed up your payment life cycle.
  • Conduct business with reliable counterparties and try to deal only with consumers you predict will be able to pay you on time and to the full amount you expect.

Maximise your payment terms with your suppliers

If you are in a position to negotiate your payment terms with your suppliers, you should do so. By increasing the amount of time that you have to pay a bill, you have more time to collect revenue from customers and increase your overall net cash position. Often, maintaining a positive and open communication channel with your suppliers will increase the likelihood of landing better payment terms.

The Bottom Line

Having an efficient and healthy business relies on the result of a healthy cash flow and a clear understanding of your incomings and outgoings. 

Here at Sole, we want to help you take control of your cash flow management and get on top of your relationships with your customers and suppliers. We recommend using Sole’s new Instant Pay integration to manage your revenue upfront and on-time. Make following up overdue invoices a thing of the past!

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