Top 5 Cash Flow Problems For Tradies

Meta-description: Any hiccups in cash flow can seriously affect the business of a tradie. Understanding these cash flow problems will help you to tackle them promptly and effectively.

If you’re working as a tradie under either a sole trader business or a company structure, you’re bound to face certain challenges in terms of cash flow sooner or later. The challenges typically arise due to the fact that most tradies receive little or no business education. In this post, we’ll take you through the top 5 cash flow challenges that tradies in Australia face. We hope that this post gives you the awareness needed to solve those challenges without incurring significant losses. But first, let’s talk about why cash flow is of importance for tradies.

The importance of cash flow for tradies

When your tradie business’ cash flow is adequate, it will allow you to pay for day-to-day expenses without any trouble. If your business has a company structure, you also have to pay your employees on time, and for that to happen, adequate cash flow is vital. In the long run, cash flow is important for expanding and growing your business and also for exploring new business opportunities ahead of your competitors.

Common cash flow problems faced by tradies

Delayed payments: Sometimes, clients delay the payments that they have to make to tradies. When there are too many delayed payments, things may get problematic, especially if you require new equipment for a new job. Delayed payments also make it difficult to pay employees on time under a company structure.

 To avoid delayed payments, you should be flexible in terms of payment methods. Also, if it’s possible, you should create the invoice and also collect the due payments at job sites. If an invoice is pending for a particular job, create it as soon as possible so that your client pays you sooner rather than later.

Improper invoicing: Most tradies aren’t very professional about creating invoices, which allows clients to exploit them and delay payments. If you’ve faced a similar situation, it’s about time to rectified your invoicing process.

If you aren’t comfortable creating invoices on your own, you can rely on software to help you create invoices in a prompt and timely manner. Sending your clients invoices timely can significantly improve your cash flow as the payments will be made as soon as the invoices are received.

Lack of insurance: If you’re working as a tradie, you should consider insurance for tradies such as public liability insurance. Public liability insurance will be of immense help to you, especially if you happen to cause accidental harm to your clients and/or their properties while on duty. In such a scenario, even if a client files a lawsuit against you and claims compensation, the insurance policy will provide financial coverage so that you don’t need to shell out anything from your own pockets.

Without tradie insurance, any kind of accidental damage to clients and/or the general public may require you to spend your own money to cover the damages. This can adversely impact your cash flow and make it difficult for you to sustain your tradie business.

Overhead expenses: If you own a tradie company, you need infrastructure. However, with infrastructure comes the problem of overhead expenses. Tradies who don’t have sufficient business knowledge may make several mistakes that result in a significant rise in overhead expenses.

To avoid paying high overhead expenses, it’s important for tradies to consider the infrastructure they create prior to the commencement of business activities. If you have more infrastructure than what is financially possible for you to handle, you should make changes to ensure that your business is making profits instead of losses.

Unfavourable credit terms: If you offer your clients credit terms, ensure that their payments are in adherence to your terms. While this isn’t a problem for small contracts, it can definitely pose a challenge when the contracts get bigger. Typically, credit terms for bigger contracts allow clients to pay in a much more gradual manner. In such a situation, you need to follow up with your clients whenever needed to ensure that timely payments are made.

When your business grows bigger, you will also get better credit terms offered by banks and other financial institutions. Before you opt for any credit scheme for buying new equipment or creating new infrastructure, you should ensure that you have the financial capability of paying back on time. It’s best to steer clear of schemes that you can’t afford so that your cash flow stays unaffected.

Conclusion

So, now that you know the top 5 cash flow problems that are faced by tradies, we hope that you will manage your finances better so that you don’t run into any of them. Remember, the better you manage your business’ cash flow, the more your business thrives, both in the short and the long terms.