Maintaining a business, especially during uncertain times like these, can be extremely difficult. If demand for your products go down or if something disrupts your supply chain, you’ll be stuck with little revenue and cash flow.
There are some things that can be done to help manage money better. Going through your expenses and weeding out any nonessential costs will reduce overhead and increase cash flow. You could also negotiate payment terms with suppliers/creditors (as long as they’re reasonable) which will give you more liquidity.
1. Accounts Receivable
A company’s balance sheet stretches all the way back to when it was first starting up. But seeing how there is such limited income, businesses should speed up their collection time for invoices so that they can maintain cash flow throughout their business.
A few other ways businesses can boost their income is by diversifying their revenue streams (don’t put all of your eggs in one basket), encouraging prompt payments from customers, creating conservative financial projections (overestimate expenses while underestimating revenues), and controlling stockpiling inventory so that it doesn’t end up costing more than what its worth.
2. Vendors
If an economic crisis were to ever happen in our lifetime (let’s hope not), the best thing people can do is control expenses within their household. And if a life-saver plan isn’t already in place for managing money challenges when they arise, then you might want to get on that!
One major source of poor cash flow is high accounts receivable balances. Even just a few late payments from customers can drive cash flows into the ground; making it almost impossible for businesses to cover operating costs and pay off debt.
Paying creditors back on time will avoid unnecessary interest charges and weight them off your shoulders in case anything else goes wrong financially. If it comes down to it, renegotiating payment terms with vendors until things get back to normal is the best plan of action. Make sure you’re upfront with them about this too!
3. Suppliers
It’s no secret that cash flow is a huge indicator as to how well your business is doing. That’s why, when a business isn’t doing so hot, it is hard for owners to pay off any debt or keep up with their finances.
When facing an economic crisis, businesses should focus on optimising and increasing liquidity. They should also negotiate extended payment terms with suppliers. It helps both parties because the longer they have to pay off what they owe, the more time they’ll have to build up their income.
One high-profile value retailer went out of business after customers withdrew trade credit insurance and suppliers had to discontinue supply in order to protect their own cashflow. To avoid situations like these businesses should try creating cost cutting measures (maybe moving into cheaper premises) or even working directly with suppliers so that they can be paid on time.
When it comes to economic uncertainty, cash flow problems can become a nightmare for employee morale and motivation. However, if companies create plans to deal with it, businesses will be able to make smarter financial choices. For example, by diversifying payment options for customers, revising contracts of suppliers or locating a more flexible leasing program for rental equipment.
The blow from just one late payment can feel like a knockout punch. Atradius says that during the pandemic itself B2B payments were 25 percent slower than normal and 90+ days old payments doubled. By being open with employees about business difficulties and supplying necessary funds in emergencies, firms can motivate their team members to work hard through tough periods while bolstering resilience in themselves and quality of life in their employees.