Aus Small Biz - Any tips on managing the gap between paying subcontractors and getting paid by clients with Cash Flow????
Thought I'd run this past here... considering cash flow is a killer for a lot of small businesses and more so, its been a tough year for many of us!
So, I run a service business where a lot of our larger clients/agencies are on 45 days end of month payment terms.
Before you ask - no, I can't really change this. It's pretty standard in our industry and there is no other way around it. Do the work, wait the time.
But In practice, this means I can be waiting 60–70 days from completing the work before the money actually lands.
The issue is that I still need to pay subcontractors and suppliers along the way - usually via direct bank transfer - so even when the business is profitable, there can be a pretty significant cash-flow squeeze.
Fuel and other costs I can whack on a card and get X amount of interest-free days, which obviously helps... its mostly paying my subbies.
I've been thinking about whether I should restructure the way I manage this... or whats even available?
Ideally, I'd like to put as many, if not all, business expenses as possible onto a business credit card, take advantage of the 40–50ish interest-free days, keep the cash sitting in the business for longer, and then clear the card when the client payments come through.
I'll never miss paying the closing balance in full. The idea isn't to create more debt - it's really just to better use the timing of the cash I already have. In the meantime, that cash can sit in the business, offset other things, potentially be used as a director's loan if needed, etc.
The only real complication is that quite a few of my subcontractors are simply paid by bank transfer. They don't take cards.
In fact - that is the VAST majority of my expenses... and if I pay them via credit card, i believe its a cash advance and X interest immediatly.
I've recently discovered services that apparently allow you to pay a supplier/subcontractor using your credit card, while they still receive a normal EFT payment into their bank account.
It seems the fee is relatively nominal - something like 1–2% depending on the service/card.
My thinking is that, potentially, I can make better use of that cash elsewhere than the fee costs me, but even aside from that, having another 40–50 days before the cash actually leaves the business would give me a lot of peace of mind while I'm waiting for the larger client payments to land.
So I'm wondering if anyone here does something similar?
I'm particularly interested in hearing from Australian business owners who:
- Have clients on 30/45 days EOM terms
- Use subcontractors and have to fund jobs before getting paid
- Use a business credit card as a working-capital tool
- Use services like Pay.com.au, Sniip, Amex AccessLine or similar
- Have any other recommendations/options I should look at
For context, I do all my business banking through NAB.
And just to be clear again - I'm not looking to carry credit-card debt and pay 20% interest.
The intention would be to pay the closing balance in full every month and simply use the interest-free period to better match outgoing payments with incoming debtor payments.
Anybody in this boat, or doing something similar, would be great to hear from.