COVID-19 | Cash is King – 4 ways your business can best respond to the challenges of COVID-19

The coronavirus (COVID-19) outbreak is undoubtedly tragic for the thousands affected, with Governments around the world having to act swiftly and assertively to protect vulnerable people. But there is underlying harm being caused to the economy, too – and the real impact of this cost is only just emerging.

We’ve all heard the saying before that ‘Cash is King!’ But what does it mean and why is it more important now during these testing times?

Cash is essentially the lag between money out and money in. As you will appreciate, cash flow is the blood that pumps through the veins of your business and keeps it alive. From small to large businesses, stress can be caused to owners and employees as a result of problems with cash flow. These problems may either be a result of internal factors such as ineffective day-to-day planning or external events such as the coronavirus which has already caused many businesses, in particular ones with a reliance on international trade, to encounter significant cash flow issues.

So how can you manage your cash flow better during these critical times?

Here are four key, but simple, strategies to focus on in order to improve your business cash flow:

1. Effectively manage your debtors

Managing your debtors during this COVID-19 outbreak is vital, especially with the increasing reluctance for businesses and people to part with their cash.

Some ways you can improve your debtors include:

• Issuing invoices to your customers at the first opportunity.
• Reviewing your aged debtors report on a regular basis in order to identify when your customers have gone outside their aged credit terms. In this context, you could institute a cash on delivery policy for slow-paying customers as an alternative to refusing to do business with that slow-paying customer.
• Set credit limits (if applicable) and monitor your customers closely.
• Reviewing, with a view to potentially tightening, your existing credit processes.
• Conducting credit checks on all potential new customers.
• Asking your customers to make deposits at the time orders are taken.
• Potentially offering discounts to your customers for early payment of invoices.
• Speak to your bank to see if they have other transactional account offerings that may better suit your current business needs.

2. Control your expenses

Managing your expenses is as important as managing revenue. Having a rolling forecast and/or budget is a must – it will help you identify expenses which may be different to what you expected or budgeted for.

Ways to control your expenses include:

• Requesting quotes for any major expense items (in order to avoid unnecessary surprises). Don’t always focus on choosing the lowest price. Sometimes flexible payment terms can improve your cash flow more than a bargain price.
• Seek fixed costs if possible which will give you greater certainty on your cash flows.
• Talk to your business partners, staff and/or family to see if there are other areas of your business where you can cut expenses.

3. Manage the timing of your cash outflows

When it comes to cash flow, you have more power to control ‘cash outflows’ compared to your ‘cash inflows’. Therefore you should identify ways to minimise outflows during times where your business also has reduced inflows. For example, if you run a seasonal business and most of your cash inflows are in summer, then try and pay your big ticket expenses during summer as well.

You could also better your cash outflow timings as follows:

• Take advantage of your credit terms. For example, pay your creditors on the date the invoice is due – rather than early or late.
• Negotiate a discount on invoices for paying upfront, or early with your suppliers if possible.
• Reach out to your suppliers early to see if you can extend your payment terms or enter into a payment plan if cash flow is presently tight. The sooner you reach out the better – you’ll need their trust and understanding.

4. Upcoming tax obligations

Whilst it’s important to provision for tax obligations, there could be opportunities to reduce PAYG payable on 28 April for Quarter 3 (January–March), in consultation with your accountant, having regard to the current economic impact of the coronavirus.

You should also check to see if you are eligible for any tax incentives noting that the Federal Government recently announced a second economic stimulus package in response to the coronavirus pandemic. In short, some of the relief relating to business include not-for-profits and small businesses with a turnover under $50 million which will receive a tax-free cash payment of up to $100,000 to help them retain staff and continue operating – paid by the Australian Taxation Office (ATO) based on tax withheld and the Commonwealth guaranteeing unsecured small business loans up to $250,000.

In addition to the above, you can click here to find out how the ATO is supporting businesses which are experiencing difficulties with tax obligations because of COVID-19. It’s possible that the ATO may have announcements in the future such as whether taxpayers may be given further assistance. Gadens’ Disputes team can also assist you negotiate with agencies like the ATO in order to obtain further relief for your business.

We are of course monitoring any developments in this space.

How can Gadens assist you!

With Australia facing unprecedented coronavirus-related challenges in 2020, it important that you manage your cash flow.

At Gadens, we understand the importance of cash flow and protecting a business receivables ledger – an important asset. Our debt recovery and collections teams offers a diverse range of debt recovery skills and experience, allowing us to cost-effectively manage the full spectrum of your needs, from the basic through to the most complex.

Moreover, we have unique debt recovery offerings in order to partner with your business in managing outstanding debtors by implementing a tailored recovery process that works for your business including:

• National Recovery Service (NRS): NRS is our specialist commercial account debt recovery company, which is an adjunct to Gadens. It is fully owned by Gadens, but operates under a commission only fee structure. If there is no recovery, then no commission is charged (this includes for all letters of demand).
• Gadens: Our offering here provides for a conventional engagement structure which can accommodate for ‘fixed fee’ arrangements in order to assist your business.

In addition to our NRS and Gadens debt recovery offerings, we also provide access to our proprietary web-based recovery management and reporting system – eDebtRecovery. Our software offering allows businesses to:

• Communicate with us without needing to use email which can result in unnecessary costs;
• Store all communications, Court documents, invoices and notes in relation to the recovery action in relation to a particular debtor; and
• Reduce your end-of-month processing time.

Feel free to click here to find out more about eDebtRecovery

We also have other specialist teams that could assist your business whether it be corporate, property, banking, insolvency, IP or employment related.

In supporting our partners, both existing and new, during these testing times, we’re also providing complimentary ‘heath checks’ in order help you identify the strengths, weaknesses, opportunities and threats for your business. So please do not hesitate to reach out to us if you would like to know more.

Remember: Cash is King!

For details of all our COVID-19 tips and updates, visit the Gadens COVID-19 Hub.

Authored by:

Patrick Walsh, Partner
Benjamin Bronzon, Associate