Positive cash flow is essential for growth, so it is important to have steps in place to keep it coming in a crisis.
One of the top reasons new businesses fail is due to inefficient cash flow – they do not have enough cash on hand when needed. Even if your business is more mature, and has surpassed its infancy stages, having a contingency plan for when crisis arise is essential for continuing to improve and carefully monitor cash flow.
Here are 9 tips for managing cash flow in a crisis, helping to get operations back on track.
Tip 1 – Send invoices out as soon as possible & send reminders
You will need to send invoices in order to receive payments, so it only makes sense to send them out as soon as possible. Be consistent and set clear expectations by sending invoices out at the same time each month with instructions for payment timescales.
Getting invoices paid on time, is a simple and effective way to increase cash flow so be sure to set up email reminders in the run up to them being due. Although it can feel uncomfortable, do not be afraid to pick up the phone and speak to any late-paying customers to make sure they received their invoice and get the ball rolling.
Tip 2 – Ask for deposits on custom orders
If you receive large or unique customer orders set a requirement for deposits – this helps to minimise the risk of financial loss in a crisis. Be sure to set out this policy in clear language.
Tip 3 – Incentivise early payments
Customers are always looking for ways to save money, so consider options for offering those who pay their invoices early a discount or offer. This will increase your cash in hand and satisfy customers who frequently pay early.
Tip 4 – Take an inventory check
Know what inventory you have and do not continue to order resources that are not moving or selling – for these you could attempt selling them with bulk discounts.
Tip 5 – Review agreements with vendors & delay payments if possible
Review vendor terms and agreements to make sure they are still competitive in the current market. If you are able to do so while continuing to maintain a healthy relationship, try to delay payments to vendors to slow the outflow of cash.
Remember communication is key, so if you plan to do the above explain reasons and try to work out an acceptable, mutual agreement.
Tip 6 – Offer subscriptions for regular purchases
If your customers regularly purchase products or services, consider setting up subscription style cycles where they prepay. This has a dual benefit of securing future sales and securing payments for future costs.
Tip 7 – Reconsider your pricing
It might not be the first thing you run to do in a crisis but reviewing your pricing and considering increasing your charges can be extremely helpful. Never undersell your product, find a balance between competitive pricing and being realistic with the costs you incur to offer the product/service.
Tip 8 – Be open to new sources of revenue
If you have a particular product or service that requires little cash outflow but is not a particular large revenue stream, try to find ways to build on it! Be creative with new sources of income and get clever with what product/service your market during a crisis.
Tip 9 – Be objective about unnecessary expenses
Look at expenses you can quickly trim, cut or find cheaper alternatives to. This could be anything from non-essential contractors, employee travel expenses or company lunches.
