Unless you’re a company that is extremely cash rich or can turn on the credit line spigot with your bank just by clearing your throat, most companies from time to time will have a crimp in their cash flow. For some companies, this is a short and temporary situation, but for others it can start to become a more serious problem.
Here are some important things to consider doing in order to shore up your cash flow and maintain a positive relationship with your suppliers and customers.
1) Within your daily and monthly operations, identify all costs that are deemed to be excessive, redundant or unnecessary.Once these costs have been identified, you’ll have a starting point from which to either reduce or eliminate them.
2) Review all of your trade payables and evaluate which suppliers would be accommodating in extending payment terms to you. You may have certain suppliers that you have been doing business with for years that you have always paid like clockwork. Since your payment history with them is sterling, now is the time to ask them to help you out by requesting a reasonable extension of terms. Most likely they’ll be accommodating since they’ll continue to want your business. You may also want to tell certain suppliers that once things have improved, you’ll be happy to bring payments back in line with the original terms.
3) For other suppliers, it may be necessary to set up payment schedules and if you can, let the payments be sent regularly through an automatic withdrawal schedule from your bank to theirs. Without question, an honest and proactive approach will continue to keep the supply line alive and your credibility intact.
4) Be sure that all your trade invoices are going out timely. Waiting for supplier invoices to come through and other related documentation in order to substantiate your own billings could result in delays of several weeks. Once the job is done or the product is shipped, send the invoice out that same day, especially via email which will shorten the payment cycle by several days.
5) Contact your best customers (those that have been paying you 30 – 45 days consistently over the past several years) and give them the option of a discount if they will pay their invoices within 10 days. Offering a new payment option, which can save them a little money, will certainly be an incentive and should bump up your cash flow.
6) Know every single receivable that is past due and make every effort to get it collected. Even the very small ones will add up. If there are customers who are considerably past due, let them know (where feasible) that you’ll have your salesman pick up the check, or that you’ll arrange a Fed Ex pickup of their payment by the end of the day. In addition, and again where possible, start offering to take payments by credit card.
Although every company from time to time will have a crimp in their cash flow, and the above points will certainly help in the recovery, the real key is to try and have ongoing vigilance towards all the factors that can contribute to the cash flow problem in the first place.
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This article has been edited by Steven Gan.