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4 ways to maintain a positive liquidity position

Posted by: Danielle Moore at November 15, 2022

While our headlines are full of news about Australia and the world’s economic woes, there is plenty to be encouraged by. The impacts of COVID-19 pandemic are fading, we have solid economic momentum, our unemployment rate is down, wages are up, and there is healthy growth in household consumption and government spending.

Nevertheless, some challenges remain to be navigated and certain sectors remain under pressure. For example, businesses with bigger clout are pushing their margins and payments terms, while smaller businesses are finding their terms being challenged.

One of the biggest tests facing small and medium sized businesses right now is whether they have sufficient cash to fund their ongoing operations and growth as their finances are squeezed. So, if you haven’t already put a plan in place, now is the time to ensure you have a sound liquidity position, so you can fund your short-term financial needs.

The good news is that you don’t have to give up on your business goals or live with the stress of future cash flow uncertainty. Here are five suggestions on how to maintain a good liquidity position:

Maintaining good liquidity

1. Cushion the impact of late payments

There’s nothing worse than waiting for clients to pay you when you have your own bills to cover. However, according to our partners at ScotPac, there are some things you can do to incentivise your clients to pay on time, like offering discounts for early payments and sending reminders a few days before the deadline. 

If you’re after a more permanent solution that offers greater predictability, you might want to consider debtor financing. This can bridge gaps in your cash flow and keep things moving, regardless of when your clients pay you.

2. Review your capital structure

One area worth looking at is your capital structure, including any under-utilised assets on your asset register. The used equipment market is going strong and now could be a good time to free up cash from the sale of under-performing or non-core assets that are detracting from your business growth and performance.

When looking for finance solutions to improve your cash flow and fund growth, don’t fall into the familiar trap of relying on traditional bank funding that locks you into unfavourable and inflexible terms. There are an increasing number of diverse finance options that cater for the need for fast, flexible capital.

Non-bank lenders continue to take market share from Australia’s major banks because of their flexibility and ability to think outside traditional bank processes. They can tailor funding to suit a wide variety of different business needs.

3. Clear stock

Many businesses run into cash flow problems when they expand too quickly or buy more stock than they can afford. You might have anticipated rapid growth prior to the pandemic and, in hindsight, did too much too soon. Or you might not have factored in the inflationary effects of the Australian economy’s post-COVID bounce-back.

If you’re in this position, you might want to check the shelf life of your stock. Consider offering discounts, bundling products, or re-marketing to get excess stock off the floor and into your customers’ hands as soon as possible. 

4. Price deals with sufficient margin

One key to successful business is to ensure that all your products and services have adequate net margin. While it’s easy enough to calculate what something costs, then add a gross margin you find acceptable, there can be hidden costs that impact on your profitability and liquidity. To avoid this, make sure all of your costs are factored in when setting pricing.

It can also be tempting to offer discounts, especially if you’re starting a new business or you’re under pressure to make sales. That’s why it’s important to consider any discounting as part of a pre-determined business strategy, for example, to drive volume or position yourself against competitors. One approach could be to keep the price of your product or service the same but add in free products or services at full price as the ‘discount’.

Why consider a non-bank lender over traditional bank lending?

There are almost always options and opportunities when it comes to funding – you just need to know where to look and who to talk to. With this in mind, now is a good time to take a look at your capital structure and put a plan in place to secure your business’s future growth and performance. Don’t wait until an opportunity presents itself and you suddenly need funding in a hurry.

Here are some key thoughts around why you should consider a non-bank lender:

How Rebus can help you maintain liquidity

Rebus has built a reputation for helping our clients with flexible and tailored capital solutions that meet our clients’ short- and long-term goals. We work as a partner and trusted advisor, filling the niche space between bank and non-bank lenders.

One of our main goals is to help our clients improve their funding structure and consolidate debt to increase their balance sheet efficiency. Now is the time to be strategic and think ahead to secure your business’ future capital needs and maintain liquidity.

Don’t wait until you’re in a funding pinch. Talk to us early, so you get more leverage from your assets and avoid unnecessary future stress.

Please get in touch, we’d love to have a no-obligation chat about how we can help.

Danielle Moore

The Trustee for the Rebus Capital Partners Unit Trust ABN 88 452 904 420. Authorised Credit Representative 523233 under Australian Credit Licence 536100.