Cashflow issues are at the core of small business owners' concerns. 6 in 10 business couldn't survive if invoices went unpaid for more than 90 days, a recent Xero report revealed. The effects of unpaid invoices can be even more difficult to manage for those in the labour hire industry.
Regardless of whether you're supplying skilled or unskilled labour, you'll likely be required to pay your contractors within 5-10 working days. Meanwhile, your clients are probably given up to 60 days to pay you for services rendered.
That means for however many pay cycles until your invoices are fulfilled, your working capital will be taking a hit to keep your staff paid. So, if you're struggling to manage your cashflow in the labour hire industry, here are some tips.
1. Maximise your organic cashflow
Organic cashflow is what we're always aiming for. Maximising this means building your terms of trade around the concept of punctual repayment. For example, you may ask for a down payment of the full or partial value rather leave the total costs outstanding.
The downside of this is that tighter terms of trade are less appealing to potential customers, and competitors may win over some of your business. If you're less competitive, you could miss opportunities for new work and potential growth.
2. Implement competitive terms of trade
By creating competitive terms of trade, customers will be more likely to turn to you, bringing their money with them.
Provide only a slightly restricted repayment period, and ensure you're invoicing clients promptly. Any time wasted before sending invoices slows down your cashflow generation.
You could also offer early settlement discounts, to encourage prompt repayment - but be careful to balance this discount with your own costs.
3. Make the most of outstanding invoices
Debtor finance allows you to close the gap between your contractors' payday and your business'. With Earlypay's business finance's solutions you'll be able to receive up to 80 per cent of the total value of your unpaid invoices within 24 hours of lodging your application. Once the client has paid, you'll receive the remaining balance minus a small service fee.
This solution is not a loan, rather a means of speeding up the process of receiving payments. You will not be required to repay the amounts, earn interest, nor will you have to put any personal assets up as equity.
If you're looking to create consistent cashflow in your labour hire business, drop us a line today.