ASK KOCHIE: “We’re struggling with cash flow in our business. Is it smart to use a credit card to help manage this?”

Cash flow struggles keep many small business owners up at night, but there’s an option many can consider: the strategic use of a cash flow tool, like a credit card.

Jessica Barkus from Remove A Dent, a family-owned panel beater and paint-less dent removal business in Mackay, asked a question about what options are best to manage the business’ cash flow challenges during the recent Kochie’s Business Builders: The Cash Flow Comeback digital masterclass panel, supported by American Express:

“We are a new business and are struggling with cash flow, finding that we are outstanding $20-50,000 at all times during our payment cycle. We are currently using funds that we’ve put aside for GST, tax and superannuation payments to cover this. Would a credit card be a better option?”

A common cash flow question

Jessica’s experience is not unique: 49 per cent of Australian small business owners report that cash flow is the most stressful part of running their business, according to new American Express Working Capital Research¹.

“Don’t feel as though you’re a poor business because you have cash flow problems,” host David Koch told the Remove A Dent team. “It happens to everyone.”

The study found that cash flow uncertainty even has a negative impact on the mental health and wellbeing of Australian small business owners. A total of 31 per cent report that cash flow issues are affecting their sleep and 22 per cent say they’ve put a strain on or broken down personal relationships. 

“It’s not surprising [that] when we talk to many of our customers, about half of them [49 per cent] feel that managing cash flow is the most stressful part of running a small business,” said Barry Fletcher, Vice President and General Manager, Asia Pacific, for American Express Foreign Exchange International Payments. “And a third of them don’t know where to go to get help.”

Yes, it’s possible to move to a better payment cycle

Fortunately, help isn’t too hard to find. While you may feel like you’re the only small business owner whose ever fallen into the negative cash flow trap, the statistics above should give you comfort. It happens to most small businesses at one time or another and that means there’s plenty of life experiences you can learn from to get on top of it and keep the doors open.

“It’s all part of the teething problems that get you into a healthier and a better payment cycle,” says Sarah Davidson, co-founder of global health and beauty brand Matcha Maiden and Melbourne café Matcha Mylkbar.

While it may feel easier to set a day aside each month to ‘do the books’, this may not be the best approach when it comes to keeping your cash flow positive. Instead, negotiate better terms with your suppliers to increase the timeframe you have to pay them. Then, don’t pay each invoice until it’s actually due.

“There’s a lot of dates – it’s very overwhelming – but you don’t have to pay things out straight away…” says Sarah. “You’re not totally helpless against the system. There are lots of ways you can actively manage your cash flow scenario to make it less stressful for yourself, but you just have to be organised.”

Choose your cash flow tools wisely

A simple way to manage cash flow that Sarah has found invaluable is the strategic use of a credit card. “I found absolutely in our experience, the introduction of a credit card helps you extend that payment cycle out in such an easy way… You’re buying yourself time and because you’re not having to pay interest for that period, it’s like getting an extra 50 days to catch up to yourself.”

“I find it sort of smooths your financial life out a bit,” agreed David. “It takes a bit of the stress out if you know you’ve got that safety net.”

The interest-free period on the credit card you use to manage your cash flow is critical. The longer the period, the more flexibility you’ll have. Choose a credit card with flexible terms that suit your operations. How long is the interest-free period? When will you have to start paying interest?

“There is a difference between business cards,” noted Barry. “Some are credit cards where you do have the opportunity to roll forward a balance, but you have to pay interest on that. Then there are others that are Charge Cards where you might have greater purchasing power, but you have to pay off that balance every statement period. So you really need to decide what’s best for you.

“The American Express Business Card is a Charge Card that extends cash flow benefit for customers with up to 110 days to pay for purchases². We feel that extension will give people a little bit more time to manage their cash flow, balance the books, smooth out payments… so that they can have full control over what they need to pay.”

Watch The Cash Flow Comeback digital masterclass:

Agree terms with your customers upfront

The American Express research found that 53 per cent of small business owners say they rely on their customers to pay on time, otherwise they struggle to pay their own bills or suppliers. This is a common issue and one of the biggest contributors to cash flow problems. Which is why you need to be upfront with your payment terms and relentlessly strict about ensuring they are met.

“I remember the best advice I ever got was from someone who collected debts,” shared David. “[They] said, as soon as you do a deal with a customer or you put the quote in, you say, ‘I’m going to ensure you get the best service and product that I can possibly give you, but in return I need you to respect… that I have a business here and staff putting all this together for you. So you have to guarantee you’re going to pay me on time.’ And so, you do it right up front, not when they’re late.”

Put a system of reminders in place to chase slow-paying customers. If you find the money just isn’t coming in on time, use your cash flow tool (it could be a credit card or charge card) to pay out any expenses and tide you over until it does.

Maybe it’s time to review your pricing

Sometimes cash flow challenges can come down to something so simple they’re often overlooked. For example, it may be that you aren’t charging enough to meet your costs.

“Am I charging enough? Have I really looked at… what it costs to bring my product or service to the market?” Sarah asked. “And am I charging enough to cover that? It could be a reflection of something you need to fix…”

She suggests benchmarking yourself against other similar businesses to check that your pricing is right. Don’t be afraid to connect directly, after all, cash flow is a common problem for small business, so it’s one you can readily solve together. “Connect with other businesses… find out what they’re charging and what are they doing to resolve those cash flow problems as well.”

Manage your money with separate accounts

When you’re experiencing cash flow issues, it can sometimes be tempting to use funds you’ve put aside for GST, tax and superannuation payments to cover expenses, as the Remove A Dent team were doing. However, this is not a good strategy, said Alexi Boyd, CEO of COSBOA (the Council of Small Business Organisations Australia). As a former fully qualified BAS agent with more than 20 years’ experience working with small and family businesses, Alexi knows where the small business pain points are.

Alexi advised putting money that is allocated for non-negotiable business costs like GST into a separate account that you can’t easily access.

“I think mentally thinking about that GST component, that superannuation component, the pay-as-you-go withholding tax – think of that as not your money and put it aside in a separate account altogether,” she said. “Really limit the amount that you can touch that [money].” 

For many businesses, using a cash flow tool such as a business charge card or credit card can be helpful to cover any gaps in your cash flow.

The American Express Business Card is designed to support small business owners and extend their working capital cycles with a market-leading³ extended cash flow benefit of up to 110 days to pay for purchases⁴ and no pre-set spending limit⁵.

This article is brought to you by Kochie’s Business Builders in partnership with American Express.

The program is general in nature and viewers should seek financial advice from an expert before making any business or financial decision based on the information presented.

^{¹The research was commissioned by Ogilvy PR and American Express and was conducted by Lonergan Research in accordance with the ISO 20252 standard. Lonergan Research surveyed 500 Australian Small Business Owners. Surveys were distributed throughout Australia including both capital city and non-capital city areas. The survey was conducted online amongst members of a permission-based panel, between 12th August 2022 and 18th August 2022. After interviewing, data was weighted to the latest population estimates sourced from the Australian Bureau of Statistics. Small business owner/manager is defined as someone who owns or part-owns a business with up to 19 employees.}

^2,4Depending on your method of payment, when you make a purchase, when your statement is issued and whether or not you are carrying forward a balance on your account from your previous statement period. If you pay by direct debit, your payment will be processed 10 days prior to your due date.

³Market leading” based on CANSTAR data analysis of business credit and charge cards in the Australian market as of September 2022.

⁵ No pre-set spending limit does not mean unlimited spending. Your purchases are approved based on a variety of factors, including current spending patterns, your payment history, credit records, and financial resources known to them.