For the past 6 months Lumos Business Solutions has been working with a service-based business. For the purpose of this case study let’s call the business ‘Serbio.’
The business was profitable but struggled to meet contractor payment deadlines.
After some illuminating work by the Lumos team the problem was discovered, and a plan created.
What we found
Serbio income had a longer payment term than contractors’ payments. The contractor’s payment terms were less (7 days) than clients (30–45 days).
Plus, there were also ATO Payment Plans in place.
Effectively owners were paying out funds before they received the funds. This resulted in a negative bank balance and a vicious, stressful circle.
The business was continually extending payment dates with contractors until payment was received from clients. It was clearly not working. The cycle of not knowing when receipts and payments would align, was endless.
The light bulb moment
Often business owners cannot see a solution to the negative cycle occurring in their business. It’s because they are working in the business. The Lumos team were able to accurately assess the financial situation and see a solution. We have a structured and experienced approach.
Showing Serbio’s owners how renegotiating contractor payment terms to fall in line with client terms would ease this situation was a light bulb moment.
Based on advice from Lumos Business Solutions, Serbio implemented a cashflow forecast. Now, owners have a clear visual of what cash is in the bank now and in the future. They have the power to monitor payment receipts and the impact non-payment will have on the business if not received by due date.
Serbio owners successfully renegotiated payment terms for contractors to align with client’s payments. Reserve funds are now held in a separate account with regular deposits.
Most importantly Serbio are out of the negative cycle, which means less stress and more time to focus on what they do best.
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