Cashflow is critical to any recruitment, labour hire or contracting business.
Cashflow is important to any business, especially recruitment, labour hire and contracting type businesses who pay payroll prior to being paid by customers.
You may have signed terms with great customers and also have steady growth in your contractor numbers, however, if you don’t have a grip of your cash flow, your business could be at risk.
It’s important to understand what can impact your cash flow and how you can manage these areas.
Slow Paying Customers
You’re most likely engaging and paying contractors prior to your customers paying you, so you need to ensure your clients pay you on time.
A Few Tips so your customers have no excuses
- Make sure you’re invoicing the correct entity – Request confirmation direct from your customer of their correct details including full company name and ABN.
- Invoice on time and if possible in advance of you processing your contractors payroll.
- Start credit control the day the invoice is sent out – Don’t wait till the invoice is due, check with your customer the invoice they have received is correct.
There might be cycles throughout the year where sales drop off, which means less cash will be coming back into the business.
It’s important to forecast your cashflow position so you can see what is coming in and out of the business, helping you to plan and keep enough cash to get through the odd dip in sales.
So your customers are paying on time, yet you’re still struggling with cashflow?
Maybe your margins are too tight.. I see it time and time again, businesses do not always take all their costs of sales into account. You need to ensure your margin includes all your costs of sales – insurances, payroll tax, finance and outsourcing fees (if applicable) should all be included when determining your margin. If a customer requests longer payment terms, I recommend increasing your margin to cover your cost of financing those terms.
I know you need to be competitive, however if you can’t include all your costs plus a healthy margin, it could be a better option to walk away and spend time sourcing another deal which will be profitable.
Written by Darren Cottrell – APositive Senior BDM, suggests you consider these points.