How to Fix Cash Flow Problems in Your NZ Business

What causes cash flow problems in a NZ business?

Cash flow problems rarely come from one big event. They usually build from several small pressures arriving at once. The most common in New Zealand:

• Slow payers. Customers on 20th-of-the-month terms who then pay a few weeks late.
• Growth. More sales mean more stock, materials and wages paid out before the money comes in.
• Tax timing. GST, PAYE and provisional tax fall due on fixed dates, whether customers have paid or not.
• Seasonality. Busy months fund quiet ones, if the cash was kept.
• Stock creep. Money tied up in slow-moving stock sitting on shelves.
• Owner drawings. Taking out more than the business generates in a given month.
• Shocks. A breakdown, a lost customer or a bank reducing an overdraft limit.

Knowing which of these is hitting you matters, because each one has a different fix.

What are the early warning signs of a cash flow problem?

Cash flow trouble usually shows up in the bank account weeks before it shows up in the accounts. Watch for:

• paying suppliers later than you used to, or only when they chase
• moving wage day or splitting the pay run
• GST or PAYE payments slipping, or paying them late with penalties
• using a personal credit card for business costs
• the overdraft sitting at its limit for weeks at a time
• turning down work because you cannot fund the materials

One of these on its own might be a blip. Two or three together mean it is time to act, while you still have options and before suppliers, staff or Inland Revenue start to notice. The earlier you deal with it, the cheaper and simpler the fix tends to be.

Is it a timing problem or a profit problem?

This is the most important question in this guide. A timing problem means the business is profitable over a year, but money arrives later than it goes out. A profit problem means costs are higher than income, so the business loses money however fast customers pay.

If you are not sure, ask your accountant for a simple profit and loss for the last twelve months. Timing problems are very fixable. Profit problems need changes to pricing, costs or the business model first.

Step 1: Build a 13-week cash flow forecast

You cannot fix what you cannot see. A 13-week forecast lists, week by week, the cash you expect in and the cash going out: wages, rent, suppliers, loan repayments, GST, PAYE and provisional tax. It shows exactly when the low points arrive and how deep they go.

Keep it simple: a spreadsheet or the forecasting tool in your accounting software is enough. Update it every Monday. Our cash flow gap calculator gives you a quick first estimate of the gap.

Step 2: Speed up the money coming in

• Invoice the day the work is done, not at the end of the month.
• Ask for deposits on large jobs and progress payments on long ones.
• Make paying easy: payment links on invoices and clear bank details.
• Chase politely but promptly. A call on day one of being overdue beats an email on day thirty.
• Review your terms. If most customers pay on the 20th of the month following, ask whether new customers can pay in 7 or 14 days.

For B2B businesses with large invoices outstanding, invoice finance can release cash from unpaid invoices straight away.

Step 3: Slow down the money going out

• Ask key suppliers for longer terms. A reliable payer often gets them.
• Line up big payments so they do not all land in the same week as GST.
• Clear slow-moving stock, even at a small discount, to turn it back into cash.
• Review subscriptions, leases and services you no longer use.
• Think twice before paying cash for equipment that could be financed over its useful life.

Step 4: Get on top of tax before it gets on top of you

Tax is the cash flow problem that sneaks up on Kiwi businesses most often. GST at 15% is collected on your sales, but it belongs to Inland Revenue. If your prices include GST, three twenty-thirds of every dollar you receive is GST. Our GST calculator works this out for any amount.

Set up a separate tax account and transfer the GST and an estimate of income tax every time sales come in. If you are already behind, Inland Revenue may agree to an instalment arrangement, or you can clear the debt with a loan so penalties and interest stop building. Our guide on how to pay IRD tax debt compares the two, and GST debt loans covers funding for GST and PAYE arrears.

Step 5: Fix pricing and margins

If the diagnosis pointed to a profit problem, this is where the real fix lives. Check that prices have kept up with your costs, that every job or product line actually makes money and that you are charging for variations and extras. Even a small price increase on work that is underpriced can change your cash position more than any loan.

Step 6: Talk to the people you owe, early

Silence is what turns a cash flow problem into a crisis. Suppliers, landlords and Inland Revenue all respond better to a call before a payment is missed than to an excuse afterwards.

• Suppliers: explain the timing, offer a firm date and keep to it. Many will agree to split a large invoice.
• Your landlord: a short deferral is often possible for a tenant with a good record.
• Inland Revenue: if you cannot pay tax in full, contact them before the due date to discuss an instalment arrangement. File your returns on time even if you cannot pay, because late filing adds its own penalties.
• Your staff: wages come first. Never let PAYE or wages be the thing you juggle.

These conversations buy time while you put a longer-term fix in place.

When does a cash flow loan actually fix the problem?

A loan is the right tool when a healthy business needs time or an opportunity needs funding. It is the wrong tool when it only postpones a loss.

Our guide to cash flow lending explains how lenders assess these loans and how to prepare.

Which finance fits which cash flow problem?

• One-off gap or opportunity: a cash flow loan, unsecured from $20,000 to $500,000.
• Slow-paying business customers: invoice finance.
• Recurring ups and downs: a line of credit you can draw and repay.
• Tax arrears: an IRD or GST debt loan.
• Larger needs, bad credit or accounts behind: a 1st or 2nd mortgage for business purposes, $20,000 to $500,000, with no cash flow or financial records needed.

Example: a Palmerston North wholesale bakery

Picture a wholesale bakery in Palmerston North supplying cafés and a few larger grocery customers. Sales are growing and the business is profitable, but the biggest customers pay on long terms, flour and power costs have risen, and the last GST return could not be paid in full.

The owner builds a 13-week forecast and sees the low point is six weeks away. She moves smaller café accounts to 7-day terms, nudges prices on two underpriced lines and sets up a tax account. That narrows the gap but does not close it. A cash flow loan clears the GST arrears and funds stock through the gap, repaid weekly from the improved margins. This is an illustrative scenario, but the order matters: diagnose, fix, then fund.

Next step

If your business is profitable but short of cash, the right finance can take the pressure off quickly. Apply in about 30 seconds to see if you qualify. It is free, it does not mark your credit file, and an expert matches you to the right lender rather than shopping your details around. Or call 09-888 5252 to talk through your options.