Maintaining a positive business cash flow is one of the best things you can do for your business. But during a crisis, this is easier said than done.
To gain control of your cash flow during a crisis, you first need to acknowledge that there will be a decline in sales. And, you have to do all that is needed to reduce your business expense. Your focus should be on operational activities that would put more cash in your hands.
The following is an overview of the recommended steps to take for better cash flow management during a period of crisis.
How to Manage Business Cash Flow During a Period of Crisis?
Longer-Term Solutions to Solve Cash Flow Problems
1. Draw from your existing lines of credit
If you have a line of credit, this is the time to withdraw cash from it to handle various situations that may crop up due to the crisis.
2. Apply for a business loan or line of credit
If you don’t have a line of credit, consider applying for one. During a crisis, it’s hard to predict when things will stabilize. So, having a ready line of credit helps when you have a financial emergency. You can consider applying for a personal loan for businessmen.
3. Apply for government aid
During the crisis, the government rolls out schemes that allow banks to provide business loans at a low-interest rate. This can help businesses take control of their cash flow situation. Research on the requirements and then apply for it.
Suggestions to Immediately Improve Your Cash Flow
4. Carefully monitor your accounts receivable
Accounts receivable is the list of customers that owe you money. During a crisis, most of your customers will delay their payments, and some may even default. Use this time to monitor your accounts receivable carefully and come up with a plan to deal with issues that may crop up.
5.Send invoices early to encourage your customers to pay you faster
Getting paid early can help you manage your cash flow better. If you send out the invoices early, the chances are that your receivables will come in faster. If you have a monthly billing cycle, talk to your vendors about getting payments early. Offer bonus points or discounts for early payments.
6. Go slow on paying vendor bills
On the other hand, you can slow down your accounts payable. The more you prolong making vendor payments, the more cash you’ll have in your account.
But remember, no vendor would like businesses to hold their payments. Paying on time can hurt your cash flow while paying too slow can harm your relationship with the vendor. So, take this step after careful evaluation of the pros and cons; talk to your vendors and find the right mix.
7. Purchase less inventory
Buying too much inventory can tie up a lot of cash. During a crisis, it would make more sense to carry less inventory and order only when it’s needed. In the meantime, find ways to liquidate unnecessary inventory, even if it means selling it off at a discount; this will ensure additional cash in the account.
8. Request for discounts
List down all your vendors in descending order of how much you spend on them. Negotiate lower prices with your biggest vendors. You can also encourage your vendors for a longer-term agreement in exchange for lower prices.
9. Lease, don’t buy
During a crisis, consider leasing equipment rather than buying them. Leasing requires you to make smaller payments over time. This will help in keeping cash flow for your day to day operations.
No one foresaw the pandemic coming and how it’s going to affect the world economy. That said, the wave of uncertainty will continue to put a strain on businesses for months to come.
If you want your business to emerge stronger on the other side, you need to be cautious about your business cash flow. The strategies mentioned above can help you manage the cash flow during this crisis.