Managing Business Cash Flow with Rising Interest Rates

After a hold on interest rate increases, Australia has experienced yet another rise this month, with maybe more to come in 2024. An increase in interest rates usually means an increase in costs and a decrease in consumer spending. As a business owner, it is imperative you manage cash flow as the demands on your cash increase.

Following are some practical tips to manage your cash flow when interest rates are rising.

  • Build a Cash Reserve

Maintaining a cash reserve is crucial to navigating unpredictable times. A financial cushion will allow you to cover unexpected expenses and avoid additional debt. Placing this money in a separate bank account will make you aware of your cash reserve and means the cash reserve won’t get ‘lost’ in the day-to-day operations.

  • Review your Finance

Take a close look at the business finance you currently have in place. Is the type of finance appropriate for the needs of the business? Do you have the right level of borrowing? Is there a more cost-effective option?

  • Monitor your Cash Flow

Prepare annual, quarterly and monthly cash flow projections factoring in likely increases in interest rates. Closely monitor your operating expenses, overheads, inventory levels, debt collections, and profit. Your accountant can help you prepare your projections and then measure these against actual cash flows. Your accountant will have a wealth of experience which you can utilise.

  • Review trading Terms

Receiving payments faster will boost your cash flow. Make it as easy as possible for your clients and customers to pay you. Same-day settlement is invaluable. If immediate settlement is not possible, you should review your terms of trade. Consider shortening your payment terms, particularly if they are longer than 30 days. Set clear payment guidelines and consider offering a discount for early payment or charging interest on overdue accounts.

  • Don’t Pay Early

Review the payment terms of your suppliers. Don’t pay invoices early if you don’t have to unless there is a discount for early payment. The longer you have the money in your bank account, the better.

  • Reduce Unnecessary Costs

It sounds obvious, but not many businesses do this. Review your costs and suppliers and identify non-essential spending that provides minimal benefits to the business. You should also look at your inventory levels in conjunction with reviewing your costs. What level of inventory do you need to run your business efficiently? Carrying excess stock can tie up your cash.

Rising interest rates pose a challenge for most businesses. It is essential business owners are proactive in managing their cashflow and have the right strategies in place. Contact you local Accru advisor for assistance in the proactive management of your cashflow.

About the Author
Martin Rush , Accru Perth
Martin’s hands-on approach to understanding his clients’ needs enables him to find the best possible solutions for them. His approach builds trust and has enabled him to forge many long-term relationships over his 20-year career. Martin Rush joined Accru Page Kirk & Jennings in 1993 after completing his Bachelor of Business degree.
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