How to improve cash flow without borrowing

Borrowing can bridge a timing gap, but it also creates repayments. First find out where cash is held up. A cash-flow forecast shows the dates when the problem is most likely to arrive.

Start with money customers already owe

List unpaid invoices by age and customer. Check that each invoice is accurate and went to the right person. Follow up before it becomes old, ask whether there is a dispute, and agree a specific payment date. The late-paying customers guide covers a measured follow-up process. Use debtor days to watch the overall trend, while remembering that an average can hide one large overdue account.

For example, a manufacturer has $40,000 in unpaid invoices. A $10,000 invoice is a month overdue because the customer’s purchase order number was missing. Correcting and resending it may bring cash forward without changing the business’s total sales. It will not help if the customer is unable to pay, so confirm the cause.

Check cash sitting in stock

Stock must usually be paid for before it is sold. Identify slow-moving items and orders placed only because a bulk discount looked attractive. If $8,000 of stock will not sell for six months, it cannot pay next week’s wages. Review reorder quantities and timing against actual sales; do not assume a discount compensates for storage, damage or obsolete stock.

Align payment dates sensibly

Ask suppliers whether an agreed schedule can better match customer receipts. Agree it before a bill becomes overdue. If you can invoice in stages for completed work, clarify milestones and approval requirements in the customer contract. Never delay payroll, super or tax obligations based on a casual assumption about what is permitted; get qualified advice.

Measure the effect

Put each proposed change into the forecast. If collecting two invoices earlier adds $12,000 in week three, does that cover the low point? If a delayed equipment purchase saves $6,000 now but causes lost sales later, include that cost too. The forecast builder and scenario worksheet help test alternatives.

If the forecast still shows that the business may not meet debts when due, speak with an accountant or insolvency professional promptly. If the underlying business is viable and the issue is a genuine timing gap, read what working capital means before considering any finance cost.

Important things to know

• A one-off cash release does not fix recurring losses or underpricing.
• Avoid assuming every unpaid invoice will be collected on its due date.
• Tax collected from customers may need to be set aside for later obligations; ask a registered tax or BAS agent about your position.