There's an old saying in business: Cash is king.
It's particularly relevant when trading conditions become difficult. You can have a profitable business, a healthy pipeline of work and plenty of invoices outstanding, but if the cash isn't coming in when you need it, you can still find yourself under significant pressure.
Like most businesses, we experience this at Dcode Group. We have staff to pay, suppliers to manage and ongoing commitments that don't necessarily align with when our clients pay their invoices.
One advantage we have is that we're software developers. When we identify a problem in our own business, we have the ability to build software to help solve it.
And recently, that's exactly what we've been doing with our cashflow management.
Knowing What You're Owed Isn't the Same as Knowing What You'll Receive
We use Xero for our accounting, and like many accounting platforms, it provides cashflow reporting, outstanding invoice information and payment reminders.
These are useful tools, but there's a gap between what an accounting system tells you is due and what you can realistically expect to receive.
Consider a client with a $30,000 invoice due at the end of the month. Your accounting system knows the due date and outstanding balance, but what happens if the client intends to pay $10,000 this week and the remaining $20,000 in three weeks?
Or perhaps the client has a question about part of the invoice and is holding payment until it's resolved. Maybe they've approved the invoice but their next payment run isn't for another fortnight.
These scenarios are common in business, particularly when cashflow is tight.
Accounting systems can record payments and outstanding balances, and some support cashflow forecasting. But they don't necessarily capture the conversations, partial payment commitments and changing expectations that influence when money will actually arrive.
There's a significant difference between an invoice being due and a payment being likely.
And when cash is tight, that difference matters.
When Times Get Tough, Cashflow Becomes a Daily Priority
In a growing business, it's easy to focus on revenue, profitability and the value of work being delivered. They're all important measures of performance.
But when trading conditions become more challenging, cashflow can quickly become the most important consideration.
You need to know what money is coming in this week, what can reasonably be expected next week and where there might be a shortfall.
That information influences decisions about paying suppliers, committing to additional expenditure, scheduling work and managing the day-to-day operations of the business.
A forecast based purely on invoice due dates can create a false sense of confidence. An invoice that's 30 days overdue might be paid tomorrow, or it might not arrive for another month.
Without speaking to the client, you simply don't know.
And when you have dozens of invoices outstanding, those conversations take time. Someone needs to follow up, record the responses, update the forecast and repeat the process as circumstances change.
We wanted to make that process easier.
So We Built Something to Help Ourselves
At Dcode Group, we use Kanopi, our own project management and business operations platform, to manage clients, projects, tickets, timesheets, invoicing and reporting.
Kanopi already integrates with Xero, giving us access to our invoicing information alongside the operational data we use to manage the business.
Rather than introducing another spreadsheet or standalone cashflow tool, we decided to extend Kanopi to help manage expected payments.
The idea was simple: instead of guessing when clients will pay, why not ask them?
We've developed an automated invoice follow-up process that contacts the relevant accounts person when an invoice is approaching its due date or becomes overdue.
But rather than simply reminding them that money is outstanding, we're asking two questions:
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Is there anything outstanding that's preventing you from paying this invoice?
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When do you expect to make payment?
Clients can respond through a simple online form without needing to log into another system.
If there's a concern, our account manager is notified so we can address it. If there's no concern, the client can nominate an expected payment date, which is then recorded against the outstanding invoice in Kanopi.
The system can also pause follow-ups when a payment date has been agreed, so we're not unnecessarily chasing clients who have already told us when they intend to pay.
Importantly, we're not trying to replace the relationship with our clients. We're trying to automate the administration around those relationships so our team can focus on the conversations that actually need attention.
Moving From Outstanding Invoices to Expected Cashflow
The real benefit comes when you start combining this information.
We can already see invoices issued through Xero and payments that have been received. Now we're building a better understanding of when outstanding balances are expected to be paid.
That gives us three useful pieces of information: what we've received, what we expect to receive and what remains outstanding without a confirmed payment date.
Rather than treating every invoice as though it will be paid on its due date, we can build a forecast that reflects the information clients are actually providing.
It's not a guarantee that the money will arrive. A client's circumstances can change, and payment commitments don't always translate into payments.
But it's a much more informed position than simply relying on the original due date.
And when you're making decisions about the financial commitments of your business, better information is incredibly valuable.
You Don't Have to Be a Software Developer to Do This
We're fortunate that we can build these solutions ourselves. But I think there's a much broader lesson here for other businesses.
You don't necessarily need to develop your own project management platform or replace your accounting software to improve the way you manage cashflow.
There are opportunities to make relatively small improvements to the systems and processes you already have.
For example, you might start by identifying which invoices are likely to be paid late, recording expected payment dates separately from invoice due dates, or introducing a process to follow up with clients before an invoice becomes overdue.
You could use a spreadsheet to maintain a rolling cashflow forecast, explore applications available through the Xero App Store, or connect your accounting data with other tools to automate parts of the process.
And where your business has more complex requirements, custom software can help bring those processes together.
The important thing is to understand the problem you're trying to solve before deciding what technology to use.
In our case, the problem wasn't that we couldn't see our outstanding invoices. It was that we wanted better information about when those invoices were actually going to be paid.
Once we'd identified that gap, we could build a solution around it.
Some Ideas Worth Exploring in Your Own Business
If you're looking to improve your own cashflow management, I'd encourage you to consider a few questions.
Are you forecasting based on invoice due dates or realistic payment expectations? If you're assuming every invoice will be paid on time, your forecast may not reflect what's actually happening.
Do you have a process for recording partial payment commitments? A client who intends to pay an invoice in instalments can have a very different impact on your cash position than one who pays the full amount on the due date.
Are you identifying payment concerns early enough? Sometimes a simple conversation before an invoice becomes overdue can prevent weeks of unnecessary delays.
How much time does your team spend chasing information? If somebody is repeatedly emailing clients, updating spreadsheets and reconciling information between systems, there's probably an opportunity for automation.
Are you using the information you already have? Your accounting platform contains valuable data, but combining that information with client communications and operational workflows can make it significantly more useful.
None of these ideas necessarily requires AI or an expensive software development project. Some can be addressed through better processes, existing applications or relatively simple integrations.
Building Software to Solve Real Business Problems
One of the things I enjoy most about running a software development business is that we get to apply what we learn from our clients to our own operations, and vice versa.
We're constantly looking for ways to improve how businesses operate, whether that's automating administration, connecting systems or making information more accessible to the people who need it.
Our latest work on Kanopi is a good example of that approach.
We identified a challenge in our own business, looked at the information we already had available through Xero and developed a workflow to help us make better decisions.
We're still refining and testing the functionality, but the thinking behind it is something any business can apply.
When cash is tight, knowing what you're owed is important. Knowing when you're likely to receive it is even more valuable.
And if there's one thing I'd encourage business owners to take away from this, it's that you don't always need to accept the limitations of your existing processes.
Sometimes a relatively small change in how you collect, connect and use information can make a meaningful difference.
At Dcode Group, we help businesses identify these opportunities and develop software that works alongside the systems they already use.
If you've identified a process in your business that could work better, contact us to discuss what's possible.
