Cash flow uncertainty and overcoming slow payments from customers
Overcoming slow customer payments is not a new challenge. Payment speed deteriorated during the pandemic and has not recovered. With FY22 well underway, it’s worth rethinking why customers are taking longer to settle accounts and what can be done about it.
Adequate cash flow keeps businesses from relying on credit every time equipment upgrades or capital investments are required. Many industrial businesses are asset-rich but struggle with day-to-day cash flow and short-term operational funding.
Construction, engineering and building businesses feel this pressure most acutely. Floating project costs, supplying materials on terms and paying weekly wages can drain cash quickly. Without intervention, the risk of insolvency increases, stunting growth and limiting the ability to fund future work.
There are no shortcuts to fixing cash flow. Sustainable, organic solutions provide the most reliable long-term stability.
Economic Factors Complicating Cash Flow
Industrial sectors are familiar with external economic pressures, but the pandemic introduced new and lasting complications. Several forces continue to restrict cash flow across these industries.
Supply chain disruptions
Australia and New Zealand have become increasingly reliant on global suppliers, especially across construction, building and manufacturing. With China a major source of materials and equipment, early production slowdowns quickly escalated into complete stoppages. Materials most affected included:
- Aluminium
- Carpeting
- Electrical and mechanical parts
- Glazing
- Lifts
- Plumbing fixtures
- Tiling
Projects requiring high volumes of these materials were hit hardest. Delays, local premiums and uncertainty disrupted schedules and drained cash reserves. Even with supply chains improving, backlogs continue to create volatility that impacts available cash.
Material costs
Supply constraints triggered a domino effect. Combined with a weaker Australian dollar, the cost of imported goods rose sharply. Some contractors reported 15 to 20 per cent increases in material prices. While conditions are recovering, the pace is slow and continues to pressure cash flow.
Labour input
COVID-19 safety rules significantly reduced productivity across construction, building and manufacturing. Limits on the number of workers on site at once slowed progress and increased project duration. Even with restrictions eased, labour shortages and increased wage costs remain a major challenge.
Strategies for Speeding Up Customer Payments
Understanding the causes of slow payments isn’t enough. Businesses need practical strategies that improve cash flow sustainably. Short-term fixes may help briefly, but long-term stability comes from consistent, disciplined approaches.
Get money into the business
Invoice early and invoice often. Prepare invoices ahead of time so they can be issued the moment work is completed. Include clear terms, conditions and consequences for overdue payments. As deadlines approach, send reminders referencing the original invoice and due date.
Get on better terms with suppliers
Improving cash flow isn’t just about collecting faster it can also come from easing outbound pressure. Renegotiating terms with suppliers, such as extended repayment periods or staged instalments, can reduce short-term strain.
Get technology on your side
In construction, engineering, building and manufacturing, invoicing often requires proof-of-work and proper documentation. A good CRM system can automate reminders, generate internal alerts and ensure customers receive invoices and supporting documents promptly.
The core lesson: be prepared, be proactive and use the tools available. Strong systems and clear processes make collections faster and far less painful.
https://scholarworks.waldenu.edu/cgi/viewcontent.cgi?article=5866&context=dissertations
https://www.mfat.govt.nz/en/media-and-resources/publications/mfat-report-international-supply-chains