Our small business guide to surviving the end of JobKeeper payments.
As most business owners will be aware, JobKeeper payments stepped down on the 4th of January from $1,200 per fortnight to $1,000 ($650 for employees who work less than 20 hours per week). And this was already down from the $1,500 payments when the scheme first became effective on May 1 2020. Payments are set to end entirely on March 28 2021.
In addition to this, there is a good chance that the ATO will be more active in chasing tax payments in 2021. The impact of these factors puts many businesses that are still reeling from the effects of COVID-19 at risk of serious cash flow pressure. Without the JobKeeper payments, is it going to be possible to retain your staff, and maintain a positive cash flow? Find out our five top tips for surviving the end of JobKeeper payments below:
1. Update your cash flow forecasts
A cash flow forecast helps you understand your future cash flow position based on anticipated payments and receipts. If you don't already have a cash flow forecast, it's a good idea to prepare one straight away. And if you do have an existing forecast it's important to include the impact of JobKeeper expiring and any other factors that will impact your future cash flow.
When preparing your cash flow forecast, it's important to consider that nothing is certain in business and to 'stress test' your forecasts for adverse events like delayed customer payments, or worse still, that one or more of your customers don't pay at all. By modelling these scenarios you can understand the impact on your business cash flow and put plans in place to guard against adverse events. Actions to mitigate your risk might include taking out trade credit insurance or putting finance in place so you have access to cash flow if you are caught short.
The best cash flow forecasts - like all business plans - are fluid and evolving and you can get an accountant to help you with this. At the end of the day though, the cash flow of your business is your responsibility so it's important that you fully understand the detail of the cash flow forecast and what the implications are for your business.
2. Make a plan with your employees
Once JobKeeper payments end, permanent eligible employees that are currently on reduced (or nil) hours have an automatic right to return to the hours that they were working before the start of the pandemic. If your business will be unable to pay these employees their original wage by March 28, you will need to ask them to agree to continue working at reduced hours.
It is therefore vital that if you foresee your business struggling without JobKeeper payments, that you have an open discussion with your employees. Provide your staff with a plan, as well as estimates of how long they will be expected to continue working at reduced hours. Many employees may be willing to agree to a reduction in hours for an extended time in order to safeguard their jobs.
3. Make the hard decisions now
A negative impact of the JobKeeper payments is that some business owners have used it to delay making the tough decisions necessary to adjust their business model or reduce their cost base. With JobKeeper expiring soon, the time to address these issues is now. Your cash flow forecast should be used to identify vulnerabilities in your business cash flow outlook and you should conduct a thorough review of your cost base to make sure it's appropriate for your business into the future. It's also an opportunity to engage with your customers and suppliers as they may be in a similar situation and you can work together to support each other.
4. Clarify invoice payment terms with your customers
In an article by The Australian, Earlypay CEO Daniel Riley predicted that invoice payments throughout the supply chain would slow in 2021 as businesses look to preserve their cash balances.
While taking longer to pay suppliers can be an effective means of retaining cash and maintaining positive working capital, if you’re on the receiving end of slow invoice payments, it could mean that your business is unable to cover operational costs, including paying your employees.
Therefore, if you’re a B2B company that invoices for goods or services, it may be worthwhile speaking to your customers to clarify your invoicing terms. The addition of penalty charges for late payments, or discounts for early payments, may be the incentive your customers need to pay your invoices on time, and keep the cash is flowing into your business.
5. Utilise an invoice factoring facility
Adjusting your invoicing terms is often good in theory but, like it or not, there will always be customers that pay their invoices late. An effective way to receive early payment of your invoices is to use an invoice factoring (aka debt factoring) service which lets you access up to 80% of the value of your invoice upfront. This can help to close the cash flow gap between paying your suppliers and receiving payment for your customer invoices and is become much more popular in Australia. Invoice factoring can also include other services such as credit checking your customers and managing the collections process so you can focus on other aspects of your business.
If you think that your business can benefit from invoice factoring please contact our team today via our sign-up form. or call us on 1300 760 205.
If you'd like to learn how Earlypay's Invoice Finance & Equipment Finance can help you boost your working capital to fund growth or keep on top of day-to-day operations of your business, contact Earlypay's helpful team today on 1300 760 205, visit our sign-up form or contact [email protected].