Poor cash flow can wreak havoc on your day-to-day operations, from being unable to recruit new talent to being late in paying suppliers. One of the biggest causes of poor cash flow in the labour-hire industry is delayed or unpaid invoices. This can occur for multiple reasons, including longer payment terms, inaccurate billing or unreliable customers.

This blog will explore six common causes of cash flow problems in the labour-hire industry, how poor cash flow can impact labour-hire companies and provide cash flow management strategies for struggling businesses.

Common cash flow problems in the labour-hire industry

While it’s arguable that cash flow problems are typical in labour-hire businesses due to the nature of the industry, they can occur for several other reasons, from poor financial planning to inaccurate reporting. Though these issues may seem small, they can become a larger concern if not addressed appropriately.

Some of the common reasons for poor cash floor in the labour-hire industry include:

• Longer payment terms — As a positive gesture to their customers, many labour-hire companies provide longer invoice payment terms, anywhere between 30-90 days. While this is a great tactic to strengthen your working relationships, you may run into trouble when paying your contractors. Aside from keeping workers paid, this cash flow gap can see you struggle to keep up with ongoing bills and expenses.
• Unpaid invoices — In addition to payments being delayed, in some cases, they’re skipped altogether. Unpaid invoices are the biggest threat to labour-hire cash flow. Without healthy cash-flow, you may be unable to meet financial objectives, cover bills or pay employees.
• Invoice errors — If your business is issuing multiple invoices per day, it’s not uncommon for billing errors to occur. Some common invoicing mistakes include typos and missing information, like not including the invoice net terms or your business's payment options. These minor errors can confuse customers and make it difficult for them to pay on time.
• Services are priced too low — Standing out from the crowd is essential to staying relevant and successful in the labour-hire industry. But business owners must find the balance between fixing their prices to generate a profit while remaining competitive to prevent scaring away customers.
• Misjudging operational costs — If you are a newly established company, it’s imperative that you accurately forecast your operating costs. More than 53% of business owners underestimate their costs during the first year of business, drying up their cash flow. Do some research to ensure you have a realistic idea of your future expenses.
• Inaccurate cash flow reports — Revenue is only one half of generating positive cash flow. If your accounting practices and systems aren’t up to scratch, it will show in your reporting. Inaccurate cash flow reports can make it difficult to stay on top of potential issues and hurt your business long-term.

How cash flow problems impact labour-hire companies

Now that we understand what causes poor cash flow in the labour-hire industry, let’s examine how it can impact your business. If you are currently experiencing cash flow issues in your organisation, you may start to notice the following:

• Unable to recruit new talent — Word of mouth is everything in the labour-hire market. If word spreads that your business is struggling financially, you may have difficulty recruiting new workers. Poor feedback can also hurt your business’s reputation, and you may find restoring your brand’s image challenging.
• Limited expansion opportunities — Sustainable growth requires capital. And if your business does not have a healthy inflow or outflow of cash, you may be forced to put your expansion plans on hold.
• Poor relationships with existing contractors — Insufficient cash flow can also hurt your relationship with current contractors, especially if you are consistently late in paying their salaries. This may lead them to consider alternative work and leave your organisation.
• Closing down — A lack of funds can cause your revenue to plummet or see you fall behind on debts and other bills. Once your debts become unmanageable, you may have to declare bankruptcy and shut your doors for good.

Getting back on track — three cash flow management strategies

As we can see, cash flow challenges can easily strain your business significantly. But the good news is that getting your finances back on track is just as easy. So, whether you’re looking to stay on top of your finances or are ready to put an end to your cash flow difficulties, check out our top three cash flow management strategies below:

• Be strategic with your growth — Too much growth too quickly can negatively impact your business’s cash flow. Try to forecast when natural growth will occur and plan around it. If there's no expected growth in the foreseeable future, consider some ways to reduce your current spending. This could include renegotiating contracts with suppliers, downsizing your office space or finding areas where you can cut unnecessary spending.
• Simplify your accounting — Investing in cloud-based software can help you simplify your bookkeeping and ensure you remain tax compliant. It’s also a cheaper alternative to manual data entry, which can help you save on invoice processing in the long run. One popular account software many SMBs choose to migrate to is Xero. The platform has a user-friendly interface and plenty of helpful resources, including cash flow forecast templates for labour-hire companies, reporting solutions, and more.
• Make the most out of unpaid invoices — If your invoices are starting to pile up, you might want to consider financing options. These solutions help turn your unpaid invoices into real funding. When shopping around for the right solution, it’s important to consider a product with minimal fees, flexibility and little to no risk. One popular invoice payment solution among labour-hire companies is Marmalade.

How Marmalade can change the way you manage cash flow for the better

With the average SMB owed $38,000 in late invoice payments, it’s never been more important to find the right cash flow solution to keep your doors open. Marmalade is the only payment platform designed specifically for invoices and can help labour-hire businesses regain control of their finances.

Labour-hire companies can use Marmalade to turn their unpaid invoices into capital, giving them the funding, they need to carry out their day-to-day operations. Here’s how it works:

• Sign up for a free account with Marmalade
• Issue invoices with Marmalade Virtual Bank Account (VBA) details
• Select invoices you would like to have paid early
• Pay a one-time fee of between 3-5.5% per invoice
• Get your money within one business day
• Spend that money however you please

In the past, many labour-hire companies had to turn to the likes of debtor finance to stabilise their cash flow, which often meant being subjected to confusing fees and lock-in contracts.

With Marmalade, users can maintain the same payment terms with their customers and won’t have to worry about onboarding them to a new system and can simply pay you as normal. There are no hidden fees, lock-in contracts or subscription charges. Users can simply access the platform whenever they want.

Marmalade simplifies the invoice payment process and eliminates common pain points felt by labour-hire business owners, from sending payment reminders to removing the need for admin resourcing for bookkeeping.

Having this automated system at your disposal means you’ll have more time to prioritise important tasks and reduce invoice spending. It also ensures immediate access to funding whenever you notice dips in your cash flow.

Some of the other benefits that come with being a Marmalade customer include:

• No risk — Marmalade absorbs the risk of non-payments from customers, giving small businesses peace of mind when using the service. But while you won’t have to worry about chasing up payments, you’ll still have total visibility over the status of your invoices.
• No interest or additional charges — Marmalade is not a lender and charges no interest on uploaded invoices. Users only pay the one-off fee between 3-5% when they opt for early payment. Every other feature of the platform is free.

Give your business a cash flow boost with Marmalade

Over the years, we’ve watched too many labour-hire business owners have to choose between missing out on opportunities or taking risky measures to secure funding. So, we decided to create a solution that would ensure the resilience of these companies without asking them to compromise their financial security.

Marmalade can help simplify every aspect of your business’s finances, from developing cash flow statements to getting cash paid to employees. More than 100 customers love our platform across a range of industries. We’ve helped traffic management companies, like Trafficwerx NT double in size in less than two years and building manufacturer, Thor Building Products, overcome financial challenges caused by the pandemic — and we’re ready to help you take your business to the next level.

Discover a better way to keep your business’s cash flow in the black by creating an account with Marmalade today.