Cash is King
In times of uncertainty, cash is king.
If you have plenty of cash or reserves to get through this period, then you do not need to read on. If not, then monitoring cash flow must be one of your priorities. We’ve already looked at reducing your fixed and operational costs and the next step would be to check who owes you money.
If you have any debtors,then contact them and see if they can make payment early? If you are still operating, make sure you sendout your invoices promptly and follow up earlier with reminders if payments are not received quickly.
You could offer your customers a small discount for early payment. For example, you could offer a 3% discount if customers pay within 7 days. Make sure the discount is conditional on early payment as you don’t want to give away profits without improving your cashflow.
Another suggestion would be to charge a penalty for late payment to customers who exceed the due date. Not only will this help increase your chances of getting your money, but it will also set you apart as a professional.
When it comes to late payment penalties, be upfront about the penalty, when it will be charged, and how much will be charged. You can often include this in the terms and conditions section on your invoice. Do some research on what a normal late penalty policy looks like for your industry before implementing one of your own.
If you have any old stock you can sell this off at a reduced price. Carefully consider which products sell well and which you have a hard time turning over. Any money coming in is better than no money.
Similarly, if you owe anyone for goods or services contact the supplier and ask for an extension to the credit facility or extra time to make your payment. You can also do this with the taxman who will often be prepared to give you time to pay.
But it may be necessary for you to consider seeking access to capital. Working capital can be critical and could mean the difference between staying in business and shutting down.
It may be worth thinking about a revolving line of credit, which equips you with emergency cash when you need it. This is the type of facility that you only pay for as and when it is used. That said, it’s important that as a business owner you maintain accurate and up to date business records together with a positive payment history and demonstrate responsible credit use.
There is also the Bounce Back Loan facility recently announced by the government and the Coronavirus Business Interruption Loan Scheme. Apart from the Bounce Back Loan, lenders and credit companies will be seeking business accounts, cashflow forecasts and business plans at this time.
If not a loan, then some businesses may be suitable for Invoice Factoring. This is the process of selling your unpaid invoices to a company in exchange for immediate cash. The factoring company takes a small cut of the money you earn, but the payoff is that you aren’t stuck waiting on customers. This certainly won’t suit every business but may be suitable for some.
Don’t forget to review your costs but also don’t overlook overlook the power of selling more to your loyal customers and gaining more customers with focused marketing.
During the pandemic, cashflow is affected not just by bringing in more cash inflows, but also by limiting your cash outflows. This means you have to manage your expenses just as much as your sales.
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