Stimulus Package Cash Must Flow Through to Small Business - Media Release and Audio

Australia needs a Prompt Payment Practice as part of the economic stimulus package, business growth expert Michael Ford has told an CPA Australia seminar. “For businesses to survive the downturn, the best thing the Australian governments could do is to pay them promptly, and ensure prompt payment down the line,” he said.
“Already many government bodies must pay their bills promptly. There should also be clauses requiring or encourage prompt on-payment in all stimulus package contracts. That increases predictability of cash flow, the life blood of small business, in a most uncertain time.”
One recent survey showed that big Australian companies were taking on average 60 days to pay their bills. “This is an issue of corporate social responsibility. Prompt payment is contagious among businesses,” Michael added, “but slow payment can cripple small firms.” Further, banks should also consider lending on cashflow, based on guarantees of government work, and the assurance that money will flow through to smaller businesses, Michael Ford says.
In times like these even profitable companies can go bad if they don't look after their cashflow, he warns. Credit or money supply is not just important for national and international economies – it's essential for all enterprises.
“What's vital for most companies is cashflow – it's the fuel that keeps the motor running. Profit feeds the ego, but cashflow feeds the family,” he says. As a business expert, he divides products and services into cashflow fountains (which keep the funds flowing through the business) and cashflow holes (which soak up available money).
In some industries (even including some accountants) up to 50% of the total yearly revenues are trapped – tied up in unpaid invoices and inventory.
“The greatest mistake many firms make in a down turn and slowing sales is to decide to sell more of the most popular product. If the cashflow's not right, that can dig a bigger cashflow hole.”
For Australian businesses the way to survive is by selling more of the good cashflow products or services. “Our work in the Australian wine industry showed that many winemakers were hurting their cashflow by concentrating on high profit vintage wines which tied up their funds for years. As much as wine drinkers mightn't like to hear it, the makers are better off with fast turnover young wines, which keep the cash flowing, than maturing great wines over years,” Michael says.
When credit is tight as it is now, there's a temptation for some companies to delay payment as a way of keeping afloat. “When you can't borrow easily from institutions you may use other sources of debt. Trade creditors are the easiest and it doesn't cost you any interest,” he says. “That's why it's so important for Australian Governments to encourage or require prompt on-payment from their contractors.”
RADIO NEWS GRAB : Hear what Michael has to say (runs 23 seconds)

 Why is Cash Forecasting so important for business? Hear what Michael Ford has to say in this 5 minute audio interview.  

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