Caitie Copley is the CFO of Accodex, a multi-award winning accounting firm with highly qualified accountants across Australia and the United States. In this article, Caitie shares how the combination of Practice Ignition plus their "Strategic Release of Creditors" tool guarantees that their business is never impacted by a disruption to their cashflow.
Businesses fail not because they aren’t profitable, but because they run out of cash… this tool can help solve your problem.
In a blog I wrote for Practice Ignition in October 2017 , I mentioned that at Accodex, I use a tool we devised called the “Strategic Release of Creditors” to manage our cashflow. This can be very useful in a cashflow crunch, which most CFOs/Finance Managers of a startup will know too well, to ensure the doors stay open and the most important creditors are paid. You could also call it creditor shuffling, which is the basic premise of this tool - you shuffle payments around based on their priority.
Payment method: This could be direct debit, EFT, ACH, or (I shudder to think) cheque; the payment method will determine whether or not payment dates can be shuffled easily.
Operational Hazard: The degree to which a late payment may affect your company. For example, there is an operational hazard in processing payroll late; late payroll = unhappy employees.
Priority: Operational hazard carries the most weight in this decision. If a creditor is a high priority, then they will become the last resort for creditor shuffling.
Frequency: How often does the creditor need to be paid?
Payment due date: This can be used for all payment methods. For direct debit / ACH, what date does the payment get withdrawn from your account? For EFT or cheque, what date do you need to manually make the payment?
Amount: How much needs to be paid?
Monthly amount: Even though I have the amount in the previous column, having the monthly spend per creditor helps me visualise my monthly outgoings so that I can plan discretionary spending.
It's worth noting that most of the decisions will come down to professional judgement. For example, our landlord is very lenient with our rent payments, so we can sometimes pay a couple of weeks late, but most landlords aren't like this, and therefore the Operation Hazard may be High. You'll also note that the phone provider doesn't have a hurt, operational hazard, or priority. This is because it is direct debit and cannot be shifted. If we did want to change the ongoing direct debit date, we would reach out to the creditor to see if they are able to accommodate a change. We try not to do this too often.
Accodex has been with Practice Ignition since 2013 and we have thoroughly enjoyed the improvements that have been made. My personal favourite improvement has been the ability to choose the recurring invoice date for each proposal .
In the past, we had had some resistance from clients because we have been unable to change the day they are billed. Now with this new feature, we can keep all clients happy by allowing them to choose the day their automatic payment is charged.
Not only does it keep clients happy, but it also smooths out our cashflow. For a long time, 95% of our monthly recurring revenue would be disbursed into our bank account in the first week of each month. Whilst this made our bank account look very attractive at the beginning of the month, it was a different story by the end of the month.
Now, with the help of this new feature, we can spread out payments from clients throughout the month and our cashflow looks much smoother.
Plan your business-initiated payment collections around your priority creditors.
Once every payment has been reflected in the SRC spreadsheet, I move all my payments into my weekly cashflow forecast. For the payments that cannot be rescheduled, such as the direct debits and the high priority creditors, I enter these into the spreadsheet and colour the cells red. I then put in the payments that can be rescheduled, (the EFT payments and low priority creditors) into the weeks that they’re due, but colour these cells green. This means that, at a glance, I can easily see which payments can be rescheduled, and which ones are either being automatically withdrawn or must be paid. The final addition is the expected revenue from Practice Ignition, and with a few formulas, I have my weekly cash surplus or deficit from which management decisions can be made.
Why use direct debit/ACH instead of EFT to receive funds?
The rest are all on recurring Direct Debit, or if you’re in North America, ACH (Automated Clearing House). Some of you may be thinking “but it takes up to 7 business days for the funds to be deposited into my account!”, however, I would definitely take the 7 business day lag for the certainty of money landing in my account (not to mention the automatic reconciliation of invoices), over the uncertainty of not having all of your money coming in on schedule!
No one bats an eyelid when your Netflix subscription is set up on a monthly recurring/set-and-forget basis, so why should this not be the case for your accountant? Cashflow is hard enough to manage as it is, so don’t add debtor chasing to your list of things to do!
Practice Ignition removes late payments from the equation entirely. Once you have a handle on your highest priority creditors and their payment days, and you know when your income will be disbursed, your cashflow planning will be on auto-pilot.
I am passionate about the Australian Football League, namely the Adelaide Football Club, and I am also passionate about numbers. Growing up watching the football with my family are among my fondest memories of my childhood and I hope to one day combine my skill sets in finance and accounting with my love for the Adelaide Crows.
I am currently undertaking a dual role as the Chief Financial Officer and Associate Accountant at Accodex Partners. As part of my role, I am in charge of managing Accodex's internal finances and a portfolio of clients.