Cash Flow
Cash flow is an important but often under-estimated aspect of maintaining your accounts. You may expect to have more income than the costs of operating your organisation or business. If you are unable to consistently receive more income than you are paying out in expenses, the business will not survive for very long.
An important strategy is to continually try to minimise the delay for payments from your customers or founders, and maximise the time between receiving good or services, and paying for them. Integral to this strategy is to ensure you do not jeopardise the long-term relationship with your customers, founders, donors or suppliers. If all your bills are paid early or on time, but your debtors aren't paying you when so due, a cashflow shortfall will occur, which can be very costly (or even send you bankrupt!)
Creditors
When reviewing the system in your organisation to manage creditors, consider the strategies to ensure payments are made when due and that records are kept efficiently.
Where you are registered for the GST on a cash-based system, the GST will also have an impact on your cashflow. Each reporting period, you are required to remit any surplus of GST to ATO. If you have had a substantial income during the reporting period (GST inclusive), and the majority of expenditures were GST-free (eg wages), you must ensure you have sufficient funds to cover your GST liability to ATO.
Debtors
The other side of maximising your business' cashflow is to minimise the delay between when you deliver a service or provide a product, and when you are paid by people or businesses or funders. A good way to keep track of who owes you money for what purposes is to issue an invoice for all amounts owed to you, even if you do not need to provide the invoice to the debtor. This way you can keep a record (called Payables) of what is owed to you and whether it has been paid by the agreed date.
Another aspect of maximising your business' cashflow is to minimise the delay between when you deliver a service or provide a product, and the time of payment.
When reviewing the system in your organisation to manage creditors, consider the following:
- Send out invoices promptly
- Keep in touch with donors, funders and customers so that they may tell you how they are progressing with the payments that they are making to you.
- Pay attention to the reporting system you have developed to ensure that overdue income is followed up.
- Limit the classification of people or organisations who can owe you money. For example, set a maximum amount of credit you will allow, or different payment terms for new customers. Decide carefully about starting a funded project prior to receiving the first instalment of funding
- Offer an incentive for early payment of accounts.
Make sure that you have a system in place to ensure you do not overdraw your bank account. Even if you have an arrangement with your bank or financial institution not to 'bounce' your cheques, substantial overdraft charges incurs. To avoid this, make sure to frequently update your records. The Internet is a good tool to check your daily balances. Inquire at your bank or credit union to ensure the lowest fees, and interest on credit balances applies to your accounts.
Inquire at your bank or credit union to ensure your bank accounts apply the lowest fees, and offer interest on credit balances. Shop around for the bank or financial institution which minimises fees, and maximises interest.