Seth Godin’s latest Akimbo podcast episode Money flows is a lucid introduction to the importance of cash flow for business health. Even businesses that appear to be thriving can get into trouble due to the gap between the commencement of projects and final payment, which can often be several months. Seth gives lots of excellent practical advice on how to avoid cash flow problems, and is an advocate of bootstrapping, whereby you develop a business model that enables you to receive a large share of payments up front from customers, to help you do the work and deliver.
I well understand the importance of cash flow, as a small business person, and also through my consulting and work experience. Last year, I worked with Craig Lawrence of Lytton Advisory on a project for the Resource Industry Network on the impact of extended payment terms (e.g. 60 days rather than 30 days after an invoice is approved for payment) on businesses in the supply chains of mining companies in Queensland. You can read about the implications of extended payment terms for business cash flow and sustainability in our report, which is available via a link in this RIN news article reporting that, pleasingly, BHP has announced a restoration of 30 day payment terms:
Resource Industry Network Welcomes BHP Announcement To Implement 30-Day Payment Terms For Its Supply Chain
Cash flow is also important to governments, a lesson that was drilled into me during those crazy months in late 2008 and early 2009, when policy makers around the world were dealing with the financial crisis. While the time itself was incredibly stressful, I later had an enjoyable conversation with 612 ABC Brisbane’s Steve Austin about some of my experiences during that time in 2017:
Interview with ABC Radio’s Steve Austin on “The time Australia’s Treasury almost ran out of money”
It was during those crazy months when I first learned about Queensland’s own fiscal crisis, from visiting Queensland Treasury officials who were pleading with the Commonwealth for assistance, as I discuss in my book Beautiful One Day, Broke the Next, which the State Library of Queensland will have available for sale prior to the upcoming Grattan Institute budget event I’m speaking at next Tuesday:
2019 Federal Budget: unpacking the economics and politics for Queensland and Australia
Hi Gene. As a sometimes supplier to BHP (BMA) it was often up to 3 months between submitting an invoice through their online system and payment. It was 60 days from their approval which took a week or so and if you had done something incorrect like a wrong code or costs not quite matching the breakdown of the purchase order it took a great deal longer. Finding the error was often a long process and their accounts department was good at ignoring requests for help. Not a critical issuse for me as I was not paying salaries except my own and no other costs. But imagine if a company had tight margins and had to pay employee wages and material supplies. I guess during the big downturn suppliers sucked it up or went broke but once more work was around BHP would have been the least preferred customer. So they had to get real. People do vote with their feet.
Thanks Russell. Yes, Craig and I heard similar stories when interviewing affected businesses.
I remember those days Russell, what I also remember was the rediculous high margins we used to put on things supplied to BMA with full knowledge of how long it is was going to take to get paid. It was common place to double or triple a quote, the procurement people didn’t care and knew how the system worked and we all just adapted to accommodate their flawed payment system, it must have cost them a lot of money in the long run.
Yes, pre 2012 I think after that things got pretty tight and BHP and RIO were cutting costs so I think they were more cost aware. Not sure how mining contractors got on. Low margins and high costs and a lot of competition since 2012. Hopefully better for them now.