A growing number of Australian small businesses are struggling in the current economic environment and cash flow is becoming a big deal! Let’s face it, cash flow is always a big deal! So, with this in mind, we wanted to talk about the two levers which businesses can use to free up cash and actually drive growth.

The two “levers” we’re referring to are Accounts Payable (what you owe) and Accounts Receivable (what you’re owed). Basically, tracking your AP and AR is essentially tracking the money coming in and money going out of your business.

Managing AP and AR can be a bit of a juggling act. Not managing it correctly can mean overpaying or not being paid quickly enough for your goods and services. Managing them accurately means you can manage your business decisions and have money to pay the bills and plan for growth.

Here are four strategies you can implement to better balance your AP and AR and drive growth in your business:

1. Establish Credit Policies

Establish credit terms that protect your business from non-payments or late payments. Regular customers with good credit ratings may receive a greater flexibility period for payment, whereas first-time customers may not be given as much leeway. When it comes to payment terms, most companies establish terms at 15–30 days.

2. Adjust AP and AR to Shorten Transaction Cycles

The shorter your transaction cycle, the better. It means your cash isn’t tied up in inventory and it gives your business the freedom to invest and adjust where necessary. To avoid long transaction cycles, establish shorter receivables timelines so that you can quickly deal with your accounts payable. (Many suppliers will give you a discount if you make early payments).

3. Stay on Top of Aging Accounts

If any extremely overdue receivables are on the books, act immediately and suspend any further business with that specific client until their account is balanced or at least until they commit to an agreed payment plan.

4. Automate or Outsource

Balancing and tracking AP and AR, including the creation of invoices, receipts, shipping orders, purchase orders, financial statements and other documentation is a painstaking process! And if something goes wrong, it can impact your cashflow and limit your ability to grow and expand. Although it seems like an expense, automating this process or outsourcing it to professionals generally provides an ROI that makes it a smart move.

If you’re finding you struggle with cashflow and think properly managing and balancing your AR and AP could be the problem, we’re happy to help and answer any questions you have!