A cash flow crisis is one of the major challenges that business owners have to face. Any kind of business has its own ups and downs and business owners need to ensure necessary steps taken to thrive the crisis. Currently, the global market is facing a major impact of the COVID-19 pandemic and business owners are facing an economic crisis during the lockdown. The inability to cover daily expenses is putting every business at risk. A cash flow crisis can appear when there is a decline in sales, customers are paying late and expenses are larger than anticipated. Small-scale businesses need to manage cash flow otherwise it could lead to destabilizing the business.
Due to continuous shortfall in sales, business owners need to focus more on operations that lower their expenses and put cash in their hands. Here in this article, we have got you covered if your business is facing a serious cash flow crisis. Follow these strategies to help get your finances back on track:
Slowdown your payment to vendors:
If you are not among those who have a history of paying late to their vendors, then try to negotiate with your vendor for extension of a few days or few weeks to pay your business bills. The longer you take to pay your bills, the more cash will you will have in your hand. But, this strategy may get you off from your vendor’s favorite list of clients. Your relationship with vendors may be at risk but strategically slowing down your payment is a good option during a cash flow crisis. But remember not to delay payments too much, only try to pay when your payment is due for some days and cash is in short supply. If your vendors allow you to delay payments for some days, consider renegotiating your payment for the long-term.
Get your customers to pay you faster.
Customer relationships are a priority in running any kind of business. To make customers pay you on time, you can offer them payment discounts. Business owners may consider offering discounts to customers who will pay before the deadline. For example, give 4 to 5 percent discounts on a first come first serve basis. Contact those customers who have made payments on time before the crisis period and ask them to clear all payments as soon as possible. Offer them to forgive an amount of their overdue balance if they pay immediately. Even if you do not receive payments via credit cards, try accepting card payments for faster and easy collection methods.
Purchase less inventory for better cash flow management:
Some business owners make mistakes by buying inventory more than required. This step can have a negative impact on cash flow management. Instated of buying too much, first analyze if your business allows you to keep inventory in hand, review the inventory requirement, and then see if there are items that can be ordered less frequently. Order only those items which are absolutely needed for running the business for now. When there is less demand in the market, try to have liquidity on any unnecessary inventory to cut your losses and gain as much amount you can by giving discounts.
Monitor cash flow:
To avoid such a cash flow crisis in the future, business owners need to focus more on cash flow statistics. Perform daily cash flow analysis to keep track of your expenses. Business firms need to develop a habit of analyzing their finances on a monthly basis to know where the company stands and can easily troubleshoot such issues during the crisis period.
Small business firms often find it difficult to downsize their employers compared to large scale business firms. Every staff in small-scale industries has the potential to generate an amount of revenue. But layoffs will not benefit the smaller companies. Instead, ask those employers to work as freelancers to reduce labor costs and health insurance. And payroll of the company and also provide the employers freedom to work for other companies. This strategy will also help the staff for increasing their income.
During the cash flow crisis, these above-mentioned steps should give business owners some ideas to stay alert and ready even in the economic slowdown.