27 Mar 2020
Tackling cashflow in a crisis

Tackling cashflow in a crisis

Uncertain times can lead to uncertain cash flow. While some businesses can usually weather a few weeks of lower than average revenue, SMEs and sole traders are far more vulnerable with fewer reserves to draw upon.

And the impacts can be second-hand too. Your cash flow may appear stable on paper, but if a few of your clients begin to struggle to pay your invoices, “on paper” might be where those numbers remain. Here are some practical tips to help you weather the storm.

Review and reassess your business plan

First, get an updated picture of your likely financial performance. Whatever your financial predictions and plans were at the beginning of the year, if your circumstances have changed, you’ll need to revisit them before making any new plans.

Then you can make changes to your business plan and budget to maximise revenue – such as focussing on high turnover/high margin products or deliverables – while cutting unnecessary expenditure.

And be honest. If there’s no reason to think next month will be better than this month, don’t inflate your numbers simply because you hope it will be. The last thing you want is to pin your cash flow plans on something that might not happen, causing you to reassess, re-budget and renegotiate your cash flow plans again next month.

Renegotiate payment terms

Even if you can’t pay your bills right now, don’t ignore them. Contact your utilities such as electricity, phone and gas and ask for an extension before the due date – or you risk attracting late payment fees as well.

If you have outstanding bills with suppliers, let them know your situation and discuss when you may be able to pay, even if you need to negotiate instalments. In most cases, a supplier would rather retain you as a customer in the long term than see you go to the wall in the short term.

This is even truer for landlords. Showing flexibility with your rent to keep you in the premises may be a much safer bet for them than risking the location remaining empty, particularly if the local economy is struggling.

And don’t forget your own customers too. Yes, your cash flow depends on them paying you quickly – but when times are hard, all SMEs are in it together. Breaking the amount into smaller instalments over a longer period will still give you a better and more predictable cash flow than waiting for them to default.

Desk scattered with pages of graphs

Defer repayments

Banks also have a vested interest in keeping you afloat. If you have any business loans, they may be willing to freeze your repayments for a period or renegotiate the terms of your loan to reduce them.

Similarly, while you may still need to lodge your BAS and tax return on time, you can ask the ATO to defer any payments you may owe, such as your quarterly GST and PAYG.

Looking ahead

Getting through a cash flow crisis can be daunting. However, when things improve you can take additional steps to prepare for next time.

Talk to the bank about a line of credit – which is much easier to get when your numbers are on the way up and not down.

Business is always about ups and downs. It’s how you navigate the downs that defines how quickly you can get back up again.

Australian Government resources during the Coronavirus epidemic

The Australian Government's Business.gov.au website has regularly updated Coronavirus information and support for business, including links to resources for financial assistance, eligibility and timing for the new government support for Australian businesses.

This advice is general in nature and has been prepared without taking into account your objectives, financial situation or needs and may not be right for you. You must decide whether or not it is appropriate, in light of your own circumstances, to act on this advice. To decide if QBE’s products are right for you, please ensure you obtain and consider the Policy Wording or Product Disclosure Statements and Target Market Determinations, available online at QBE.com/au. Insurance issued and underwritten by QBE Insurance (Australia) Limited (ABN 78 003 191 035, AFSL 239545).

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