Cash flow is an ongoing challenge for businesses – and even those who manage it well can be taken unawares by things they can’t control such as rising costs, unexpected maintenance expenses or a slowing economy.

“At the moment, the New Zealand economy is in recession,” says John Machell, head of Corporate Banking at Westpac NZ. “People and businesses have been reining in spending over the past couple of years and the impact is being felt across many sectors.”

Machell notes that industries reliant on the discretionary dollar, such as hospitality and retail, are among the most impacted.

“Construction companies and contractors also had a tougher 2024, with project deferrals or delays being one reason for cash flow challenges. More broadly, any business that carries inventory may find itself overstocked as demand has slowed.

“After several years of lenience post the COVID-19 years, businesses are needing to play catch-up on any tax outstandings from prior periods and this is contributing to cash flow pressures. Banks are paying particular attention to a borrower’s tax position before lending to them, so it’s a priority for businesses to stay on top of their tax arrangements with IR.”

Understanding the figures

Understanding cash flow is fundamental to managing it.

“It sounds like common sense, but you’d be surprised how many of the business owners we speak to can’t provide a credible three-month forecast,” says Machell.

“We’re here to help, and the best way for us to do this is with a clear picture of what’s ahead and what risks or factors may potentially change this forward view. That’s one of the reasons why we welcome opportunities to form a working relationship with our clients and their accountants.

“Generally speaking, a credible, accountant-prepared forecast will give the bank comfort that a business has got the right support around it,” adds Machell. “We all want the best for the business owner and working together is a really powerful way to streamline the process to achieving an effective outcome.” 

Tips for managing cash flow

When times are tough, many clients will welcome the following tips and advice on managing cash flow.

• Use a cash flow forecast.
Track your past income and expenses to help you plan.

• Reserve money for tax.
Don’t be tempted to dip into it.

• Seek help as soon as you see a cash flow problem or growth opportunity.
The sooner you inform your key partners, including your banker, the more likely they’ll be able to help.

• Invoice as the work is completed.
For larger jobs, consider structuring payment milestones into your quotes, so you get paid as each stage of the work gets done.

• Make payments easy for your customers.
Offer secure payment options such as credit card processing, ecommerce and direct debit payment processing (as applicable). Have a standard follow-up system in place.

• Have the right facility structure.
Understand your cash flow cycle and work closely with your bank to ensure that your facilities meet your needs. Options include overdrafts, revolving credit facilities, trade finance options for cross-border transactions (importing and exporting), and term loans and asset finance loans for larger capital purchases and acquisitions.

• Stay close to big debtors.
Work closely with companies that owe you large amounts to help you spot early warning signs and agree on an action plan if problems arise. 

Find out more

Westpac offers a range of services and options to help your clients manage and grow their business. The free Westpac Cash Flow Guide, which provides valuable insights and information on successful cash flow management, available here.