Manage your cashflow during a Recession - Top Tips
During economic downturns, one of the main reasons why businesses go under is because they run out of cash. However sound your business is in other ways, successful cashflow management should be your main priority with a recession looking more likely. Here are some key suggestions to help improve your cashflow:
Monitor your cash flow
Keep an eye on your bank account on a daily basis, and maintain a rolling cash flow projection. Beware of potential lags in your cash flow and be more aware than ever that late payment becomes more widespread during lean times. Keep an up-to-date cash flow forecast - especially if you operate a seasonal business. Read our complete guide to creating a cash flow forecast.
Collect payment more efficiently
You should ensure that your payment collection procedures are as efficient as possible. If you have 30 day terms for example, you should begin chasing the moment payments become overdue (day 31). You can even send payment reminders close to the end of the payment term. There have been reports of larger companies imposing payment terms on smaller companies in the press. In many cases this may be hard to negotiate with, but you should still ensure payment is not late.
Encourage prompt payment
Late payment problems can lead to serious problems for small companies - even insolvency. With this in mind, why not encourage your clients to pay on time (or early) by offering prompt payment discounts?
Work our your credit requirements early
With bank lending becoming tighter by the day, and interest rates rising accordingly, make sure you work out your future borrowing requirements in advance and secure any borrowing / overdraft facilities as soon as you are aware of the need.
Consider Invoice Factoring
Invoice Factoring is an increasingly popular option for small companies. Rather than have money tied up in invoices that have yet to be paid, you can receive an initial payment up front (typically 80% of the gross value of the invoice) and the remainder when the customer pays the invoice to the Invoice Finance provider – less the service fee.
Credit check your clients
In view of the increased risk in the financial markets, you should always credit check clients before doing business with them. This is not an expensive process - you can try our own online company credit service here.
Cut internal costs
Are there ways you can cut costs internally? The first things large companies do when business is bad is to make "internal efficiency savings" - the same is true for small companies. You can save money in many ways - from changing your bank account to a "free banking" provider, to switching utility and broadband suppliers. If you are renting office space, you will be in a stronger position to renegotiate fees during a downturn.
Confront potential problems early
Many small business owners will do anything rather than admit they may be heading for trouble. If you do find that your business may be in financial difficulty in the near future, confront the problem right away. It is much easier to turn around a business dealing with early difficulties than one which has already hit the rocks.
You can read dozens more guides to cash flow and late payment here.
Posted October 6, 2008
