Keeping cash flow viable is a challenge for small businesses in the best of times. And we can all likely agree, this is not the best of times.
With customer demand down and businesses of all kinds currently treading water, it’s more important than ever to pay close attention to money coming in and money going out. Inadequate cash flow can cripple an organization, leading to a loss of customers and a corresponding need to lay off employees. Sadly, this worst-case scenario has become all too real in today’s economic landscape.
But there are concrete steps you can take to avoid this scenario, if you act with expedience and an objective appraisal of where things stand today. Here are tips to consider.
Consider “progress billing.”
As TAB Facilitator Phil Spensieri has suggested, now is a good time to think about introducing “progress billing.” This method “allows you to bill your clients incrementally as opposed to one large sum.” Taking this approach “ensures that you have money consistently coming in while you are working on your clients’ projects, eliminating the waiting period for payment after the project is completed.”
Renew your focus on accounts receivable.
The principle is simple—the more money coming into your business, the quicker your cash flow problem will be resolved. The management accounting firm GrowthForce recommends several accounts receivables actions you can take, including:
- Request an initial deposit or partial payment at the beginning of a project with a new client.
- Alter your accounts receivable system so that clients receive your invoice immediately upon delivery of products or services, instead of (as many organizations do) invoicing for services rendered on a pre-specified day of the month.
- Do a comprehensive evaluation of past due clients and take action to make the appropriate payments, even partially or in a staggered payment schedule.
Finally, do all you can to make customer payments easier to complete, as, for example, through mobile or electronic payment options.
Negotiate with vendors and suppliers.
It’s altogether likely your various suppliers are experiencing cash flow problems, too. If you’re unable to pay them all that you owe in a single sum, talk to vendors about making a partial payment at the present time—with the understanding that further payments will be made at a later date.
Also, ask if your suppliers offer discounted early payment options. If so, take advantage of the discounts and pay ASAP. This can ease your own cash flow status, while helping to strengthen the relationship with the vendor.
Explore new funding options.
Fortunately for businesses experiencing cash-flow difficulties, there’s a wide array of funding options currently available, including:
- Small business line of credit
- Working capital loans
- Equipment loans
- Small business credit cards
Research what large commercial banks, local community banks, and direct online lenders have to offer, and see how they can help your business.
Get serious about cutting expenses.
Sometimes cost-cutting ideas occur to you or a member of your team and get filed away for a later discussion. Right now is the only timeframe you should be considering if you don’t want minor cash-flow problems to become big problems. Ask your finance team to closely scrutinize all areas where money is being spent. Request that the team or others with a close financial understanding of your business help you re-set priorities that emphasize cost reduction, not further spending.
Every dollar you spend unnecessarily detracts from critically important funding needed to maintain operations and drive more revenue into your cash reserves.
Want to learn more about effective cash flow management? Register for our complimentary TAB BOSS Webinar, “How to Increase Your Company’s Cash Flow.”