Cash is King during COVID-19. Poor cash flow can cause a significant number of financial issues but in a pandemic it can destroy your business. The good news is, strengthening your cash flow in a volatile environment can improve your overall cash position.
Cash flow is about both bringing in more cash and spending less cash. You must manage both expenses and revenue to optimize results.
To build a more stable cash flow, here are six tips to better manage and control cash.
1. Collect a Deposit First
Anytime you work for someone before receiving payment, you are loaning them money. Given the pandemic, a company’s good payment history may no longer be a good indicator of its current and prospective financial situation.
Requesting a deposit ensures that the client is serious and can pay while also providing you the cash necessary to start work. If the client balks at giving a deposit, ask them for current financial statements that show they can pay your invoices on time.
For ongoing services and to receive cash sooner, try suggesting a retainer model or payment upfront versus in arrears.
2. Invoice Timing and Follow Up Are Everything
Even in an unstable environment, you must send invoices to get paid. The sooner the invoice goes out, the sooner the cash comes in.
Not everyone will pay their invoices on time.
Ask customers to confirm receipt of invoices and follow up until you have confirmation. Send an email reminder a few days before the invoice is due and the day it goes past-due. Many accounting programs offer the option to send out email reminders, which frees up valuable time and documents your follow up in writing.
If the customer does not pay within a week of the due date, make a follow-up call to find out what’s happening. Be consistent and persistent. Develop a policy that stops future orders or services until payment is received or the client arranges a payment plan.
If customers are not paying their invoices after 90 days, try calling a collection agency. We work on a contingency basis, so if we don’t collect, you don’t pay.
Although this is not the time to raise your prices, consider expanding your products and services to new markets. With everyone working from home, try scheduling a few sales calls. Your audience is captive and there are no travel costs involved.
3. Increase Revenue
- Is there something about the current market that might make my product more attractive to a different audience?
- Can I incentivize my loyal customers to help promote me?
- Can I bundle less popular items or services with more popular items or services for a slight price increase?
By planning and implementing a strategy to develop new markets, you’re expanding your business while keeping money flowing into your organization.
4. Don’t Pay if You Don’t Have to
The federal government has changed many of the tax deadlines and local and state governments now allow later payment of certain taxes. Even if you already budgeted your tax payments, it may make sense to wait.
Estimated taxes based on a pre-pandemic economic outlook are now out of date for most companies. If your profits are down you will owe less. Making the same estimated payment means waiting until next year to get a refund. But that isn’t going to help you pay 4th quarter expenses.
If you are concerned about your company’s financial strength or cash flow, consider holding off paying your rent or mortgage. The obligation won’t go away but if current regulations prevent eviction, it may make sense. Ask about partial payments and late payment waivers. Many previously inflexible landlords are far more cooperative in the current environment.
5. Negotiate Discounts or Extended Terms
Reach out to your own vendors and suppliers. Those who were not open to negotiating before COVID-19 may now negotiate, with either discounts, extended terms or payment plans.
Some vendors or suppliers may have excess or aging inventory and willing to offer good deals.
There’s no harm in asking but be careful about how you ask. You don’t want others to question your financial strength and ability to pay. Your partners may ask for their own deposit.
6. Streamline Your Business
The old adage “time is money” is famous for a reason. If you’re trying to cut business expenses, look at your entire operation.
Can you replace systems by implementing better software? Can you simplify time-consuming processes to eliminate costly overtime pay? Are these opportunities less expensive to implement now due to available discounts? With customers are familiar working remotely, can you do more via phone and on-line instead of in person, eliminating travel costs and travel time? Do you need as much office space now that your employees have learned to work effectively from home?
If you find ways to make your business more efficient, you will also save money. Cash has always been king, but especially so during COVID-19.
We know that this is a stressful time, but we want to reassure you that while working remotely, The Kaplan Group is still fully functioning. We will work hard to preserve long-term relationships that will last way beyond the pandemic.
Please let us know how we can help.