The top of the year is an excellent time to reflect on your business.
What’s working well and what isn’t? What are your goals for the next 12 months? Where can you make improvements?
Unfortunately, it doesn’t look like there will be many
free kicks in 2025, Despite a recent rate cut, expectations are we’ll see the same sluggish economic activity for some time still.
With that, smart businesses will need to keep looking for opportunities to get ahead. This includes optimising how they manage debt and their financial obligations.
Changing-up your repayments based on what best suits your business, is one of those opportunities.
This includes considering shortening your loan repayment schedule and aligning loan repayments with your business income.
These two related approaches can be a powerful left-right combo to improving your cashflow – surely a goal for all SMEs as they reflect on the year ahead.
Let’s take a closer look at these two approaches.
Shortening your loan repayments
While many business loans get set-up with monthly repayments, there are advantages to making the change to a shorter loan repayment cycle, such as weekly.
Reduced interest costs
Making more smaller but more frequent repayments should help you bring down your loan faster – in turn, reducing the amount of interest you’re charged. Win!
Cashflow flexibility
Making more smaller but more frequent repayments should help you bring down your loan faster – in turn, reducing the amount of interest you’re charged. Win!
Improved financial discipline
Like the above, weekly repayments can help bring you closer to how the business is performing, to better see the flow of money in and out. Engaging more frequently with your cashflow can sharpen your financial discipline, and also reveal new opportunities and ‘efficiencies’ you might have otherwise missed.
Adaptability amid change
SME owners know that there’s always an unexpected event around the corner.
Property damage, machinery breakdown, recruitment costs, increase in overheads. It could be anything. Having a smaller, more frequent repayment schedule could help a business adjust quickly without the stress of a larger repayment falling imminent. Weekly repayments may also allow for adjustment of repayment amounts, or terms, until that unexpected event has passed.
Aligning your loan repayments
When it comes to cashflow, just a matter of days can make a difference to your financial position.
So, consider shifting when your loan repayments are due.
By aligning loan repayments with when you get paid by customers, or when you have greater cash balances in the bank, you can improve your cashflow position.
Getting these regular repayments 'out-of-the-way' also helps give you a clearer picture of what funds you can routinely use elsewhere, such as investing in your operations, or building up a cash reserve, or paying down other debts.
So, good for you – but also for your lender. A history of timely and reliable repayments can help the next time you need to extend credit levels or apply for finance.
This is all about being in control of your cashflow. And it’s something that can be considered regardless of how short or long your operating cashflow cycle is.
Short cashflow cycle
Let’s consider a business in hospitality – an industry where cash typically hits the account faster than most. Here we have a cafe, taking cash receipts daily.
Rather than hold money over until a monthly repayment is due, they could try weekly repayments.
This will better align with the cafe's daily take, while smoothing out the daily fluctuations to help with more stable cashflow. Smaller but more regular payments can make it easier to see what working capital is available each week, while potentially avoiding the stress of shortfall that may come with a single larger payment.
Long cashflow cycle
While many SMEs, like those in construction or consulting or manufacturing, have longer operating cashflow cycles, they can still look to better align income with loan repayments.
Diligent invoicing is essential – both for when payments are due, but also through regular communication and reminders to make sure the money arrives when you need it. You can negotiate payments from customers in instalments to get cash arriving on a more regular basis, making it easier for you to meet your own repayment obligations.
