Running a trade business is physically demanding work. Cash flow management should not make it more stressful than it needs to be.
Whether you are a sole trader electrician or a plumbing business with five crews, the cash flow challenges are similar: you do the work first, you invoice after, and you wait. Here is how to manage that gap effectively.
A typical job for a trade business follows this pattern: quote, schedule, purchase materials, complete work, invoice, wait. From start to payment, the gap might be anywhere from two weeks to two months.
For Sam, a sole-trader plumber, this means his cash is tied up in jobs he has completed while he waits for payment. For Olivia, who runs a team of six electricians, it means she is covering wages and van costs for a week or two before the invoices she raised start to be paid.
The most common cash flow improvement for trade businesses is also the simplest: invoice on the day of job completion, not when you get to the paperwork.
Modern accounting apps like Xero and MYOB have mobile invoicing features that take minutes to use. Take a photo of the completed job, create the invoice, send it from your phone before you drive away. Your payment clock starts the same day as the work is done.
For jobs over a certain value — whatever threshold works for your business — require a 25-50% deposit before materials are purchased. This covers your material costs and ensures the client is committed before you invest significant time and money.
Deposits are standard practice for larger trade jobs and rarely cause issues with genuine clients.
This is a common area where sole traders and small trade businesses get into trouble. Mixing business and personal finances makes it almost impossible to accurately track your cash position.
A separate business bank account — even just a second account with your existing bank — gives you visibility into your business cash position and makes tax time significantly simpler.
A GST bill that arrives when you do not have the cash to pay it is a stressful situation. A simple habit: put aside 10% (or 15% in New Zealand) of every invoice payment into a separate account as soon as it arrives. You will never be surprised by a GST bill again.
If you invoice businesses — builders, project managers, property companies — rather than direct consumers, invoice finance is available to you. FundTap connects to your accounting software and lets you advance funds from outstanding invoices within hours.
For a trade business with a $20,000 invoice outstanding on 30-day terms and wages due this week, accessing that cash early changes the week significantly. The cost of doing so is a small percentage of the invoice — typically far less than the stress of managing the gap another way.