Navigating risky waters: Outlook for 2013

Gareth Jones resized for webThe Australian economy is tracking relatively well compared to other developed nations, but a focus on the business fundamentals must prevail if this performance is to continue in 2013, writes Gareth Jones, Dun & Bradstreet's CEO. 

This year, Australia's GDP is expected to increase by 1.9 per cent, jumping to just under three per cent in 2014. This will be an impressive result if achieved, particularly during a time when advanced economies are expected to record significantly lower growth.

A recent report published by the OECD indicates that the Japanese, European and the United States economies are tipped to grow only 0.7 per cent, -0.1 per cent and two per cent respectively in 2013. But despite our economic strength, challenges still remain for the business community.

Underscoring these challenges are business-to-business payment data and business expectations results demonstrating cash flow pressures. D&B's trade payments analysis  reveals firms are being forced to wait more than 52 days to receive payment for goods and services, while D&B's National Business Expectations Survey finds businesses are anticipating reduced activity in the March quarter with expectations for sales, inventory and selling prices dropping sharply from the previous quarter.

Late trade payments are particularly concerning, given that they are above standard 30-day payment terms, which can have a knock-on effect on cash flow. Businesses that are unable to properly manage their cash flow cycle - in essence, the money flowing in and out - may experience severe consequences as a result, the worst being insolvency.

To effectively manage cash flow and deliver on their growth expectations, firms will need to focus on the fundamentals. This means that firms will need to prioritise three key areas, or the three C's:

Caution when taking on new customers

A large part of taking on board trustworthy customers is verifying their legal and business details before credit is extended to them, to ensure that the firm you're dealing with is who they say they are. This process involves appropriately capturing and verifying details of every one of your potential customers, from the exact name and address to payment records and risk scores.

As this process involves the sales and credit departments of your business, constant communication between these two areas is key in order to take on profitable clients and minimise exposure to fraud. Independent credit checks offer an objective analysis of a company's credit history (payment records, risk scores, directorship information and bankruptcy data).

Clear collection strategies

All firms want to avoid bad debt write-off, but this is often easier said than done, particularly when much time and resources are spent trying to chase up old debts. At these times, outsourcing debt recovery services may be the appropriate option as this ensures the business can focus on day-to-day operations and separate client relationships from the collections process.

Cash flow scrutiny

The first two factors are ultimately a driver of the third - if the ball drops on any one factor, a firm is at risk of entering negative cash flow territory. This can make business owners more reliant on external funding, which can be costly and challenging to come by.

As mentioned earlier, poor cash flow can lead to failure - a business owner's worst nightmare - if the right measures are not put in place. It's important to scrutinise the incomings and outgoings of your business on a regular basis to maintain healthy cash flow.

While Australian businesses are performing well compared to many other first world nations, we must move into the year ahead with caution, clarity and a focus on good cash flow management practices to will help safeguard businesses against any external shocks in the year ahead.

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