The Cash Flow Crisis

Australian SMEs face a cash flow paradox:

The Reality:

The Cost:

The Solution: Proactive cash flow management.

Profit vs Cash Flow

Critical Distinction:

Profit: Revenue minus expenses (accrual accounting)

Cash Flow: Actual money in minus money out (cash accounting)

Why They Differ:

Key Insight: You can be profitable and still run out of cash

The Cash Conversion Cycle

Formula:

Cash Conversion Cycle = Days Inventory Outstanding + Days Sales Outstanding - Days Payables Outstanding

Components:

Days Inventory Outstanding (DIO):

Days Sales Outstanding (DSO):

Days Payables Outstanding (DPO):

Example:

Implication: You need 67 days of cash to fund operations

The 13-Week Cash Flow Forecast

Why 13 Weeks?:

Structure:

Week 1-4: Detailed Daily/Weekly

Week 5-13: Weekly Aggregates

Template:

Opening Cash Balance
+ Cash Inflows:
  - Customer collections
  - Other income
  - Financing received
= Total Cash Available

- Cash Outflows:
  - Supplier payments
  - Wages and salaries
  - Rent and lease payments
  - Loan repayments
  - Tax payments
  - Other operating expenses
  - Capital expenditures
= Total Cash Outflows

= Net Cash Flow (Inflows - Outflows)
= Closing Cash Balance

Building Your Forecast

Step 1: Opening Balance

Start with actual cash in bank today

Step 2: Cash Inflows

Customer Collections:

Other Inflows:

Step 3: Cash Outflows

Fixed Payments (certain amounts and dates):

Variable Payments (estimate based on history):

Periodic Payments (don't forget these):

Step 4: Calculate Net Cash Flow

Inflows - Outflows = Net Cash Flow

Opening Balance + Net Cash Flow = Closing Balance

Step 5: Review and Refine

Scenario Planning

Base Case:

Worst Case:

Best Case:

Action Triggers:

If cash balance < $50,000:

If cash balance < $20,000:

Accelerating Inflows

1. Clear Payment Terms

Best Practices:

Australian Standard Terms:

2. Invoice Immediately

Mistake: Invoice at month-end

Better: Invoice on delivery/completion

Impact: 7-14 days faster cash collection

3. Progress Billing

For Projects:

Benefits:

4. Early Payment Discounts

Example: 2/10 net 30 (2% discount if paid in 10 days)

Math:

Verdict: Only if you have cash flow crisis

Better Approach: Small rewards, not discounts

5. Deposits and Prepayments

When to Use:

Amounts:

6. Aggressive Collections

Process:

Day 1: Invoice sent (email + portal)

Day 7: Friendly reminder email

Day 14: Phone call ("Did you receive invoice?")

Day 21: Firm email (payment required)

Day 30: Phone call (payment arrangement)

Day 45: Final notice (escalation warning)

Day 60: Collections agency or legal

Key Principles:

Delaying Outflows

1. Negotiate Payment Terms

With Suppliers:

Script: "We value our relationship and want to continue growing together. To better align our cash flow, could we extend terms from 14 to 30 days? We'll maintain our payment reliability."

2. Strategic Payment Timing

Don't Pay Early:

Exception: Early payment discounts (only if ROI positive)

3. Inventory Optimization

Problem: Cash tied up in excess inventory

Solutions:

4. Lease vs Buy

Lease Advantages:

Buy Advantages:

Decision Framework:

Working Capital Financing

1. Overdraft Facility

Purpose: Short-term cash flow gaps

Typical Terms:

Best For: Seasonal fluctuations, timing gaps

2. Invoice Financing

How It Works:

Costs:

Best For: Fast-growing businesses, B2B with long payment terms

3. Trade Finance

How It Works:

Costs:

Best For: Importers, inventory purchases

4. Business Credit Cards

Advantages:

Disadvantages:

Best For: Short-term float, rewards, expense management

Key Metrics

Weekly:

Monthly:

Quarterly:

Dashboard Example

Cash Position (as at 30 June 2026)

Cash in Bank: $287,000
  - Operating: $187,000
  - Tax (GST/PAYG): $75,000
  - Restricted: $25,000

Weekly Burn Rate: $42,000
Weeks of Cash: 6.8 weeks

Receivables:
  - Current: $145,000
  - Overdue: $67,000 (31%)
  - DSO: 52 days

Payables:
  - Due this week: $38,000
  - Due next 30 days: $124,000
  - DPO: 28 days

Cash Flow Forecast:
  - This month: +$23,000
  - Next month: -$15,000
  - 13-week closing: $245,000

Red Flags:
  - Overdue receivables >30%
  - DSO trending up
  - Negative cash flow in Month 2

Warning Signs

Immediate Action Required:

Strategic Action Required:

Tax Obligations

GST:

PAYG Instalments:

Superannuation:

Industry Payment Practices

Construction:

Retail:

Professional Services:

Manufacturing:

Economic Environment

Interest Rates:

Exchange Rates:

Commodity Prices:

Q: How much cash should we keep in reserve? A: Minimum 3 months operating expenses. Ideal: 6 months. Depends on: revenue predictability, access to financing, growth stage, risk tolerance.

Q: What's the biggest cash flow mistake? A: Confusing profit with cash flow. You can be profitable on paper and still run out of cash. Monitor cash weekly, not just monthly P&L.

Q: How do we handle seasonal cash flow? A: Build cash reserve in peak season. Use overdraft for troughs. Time major purchases for peak season. Consider seasonal staffing. Forecast 13 weeks ahead minimum.

Q: Should we offer early payment discounts? A: Usually no. The cost (annualized 30-40%) exceeds financing alternatives. Better: improve invoicing, follow up systematically, make payment easy.

Q: When should we seek external financing? A: Before you need it. Best time: when you're strong. Options: overdraft (ongoing), invoice financing (growth), term loan (assets). Don't wait until desperate.

Q: How do we improve DSO? A: Invoice immediately. Clear payment terms. Systematic follow-up. Multiple payment options. Progress billing. Deposits for new/high-risk customers. Make it easier to pay you than to not pay.