Cash flow can be tricky to manage at the best of times, let alone during an economic downturn. Dips in demand, supply chain issues and late payments can cause serious problems, which is why we’ve put together a guide on how to navigate uncertainty and protect your cash flow.
1) Modernise Your Payment Infrastructure
Electronic payment solutions and accounting software can help to shorten your invoice collection cycle and keep cash flowing in nicely.
Cloud accounting software makes it faster and easier than ever to send out accurate invoices. In fact, for regular or retainer clients you can have your chosen platform automate your invoices for you, so you really don’t have to lift a finger. Once sent, the software can then keep track of payment deadlines and send out reminders when necessary, or alert you when further chasing up is required.
Meanwhile, electronic payments streamline your customers’ experience and make it easier than ever for them to pay you promptly. After all, the more difficult and time-consuming it is for customers to pay you, the longer they are likely to put it off. It’s in your best interests to make it as easy as possible.
2) Maximise DPOs
DPOs - or days payable outstanding - means the length of time it takes you to pay your vendors. Increasing your DPOs and delaying payment a little can help you hold onto your working capital for longer and top up your accounts before paying out. However, it’s important to take care not to miss any deadlines or aggravate your vendors.
Don’t maximise your DPOs indiscriminately, either. Smaller firms in particular may rely on shorter DPOs, so weigh up whether maximising your DPOs will jeopardise your relationships.
3) Update Cash Flow Forecasts Regularly
Cash flow forecasting is an important step in good cash flow management, but it’s important to update your forecasts regularly for the most accurate results. This is truer than ever right now, as the global economic climate is shifting rapidly. You may even want to consider forecasting on a weekly basis.
4) Negotiate Supplier Terms
Negotiating supplier terms can prove enormously helpful when it comes to optimising your cash flow during difficult times. Ways to do this include:
Extending payment deadlines - this can help you to keep more cash in your business for longer.
Negotiating volume discounts - if you are currently in a good cash position but are concerned for the future, a bulk discount could help you to save money in the long run and foster a good relationship with your supplier.
5) Re-examine Your Supply Chain Strategy
If you have been struggling with supply chain disruptions, working with local vendors could help to fix this issue.
Alternatively, if you were working with lower cost vendors who required a larger order, you could benefit from switching to a vendor who charges slightly more per unit but has a lower minimum order and more attractive payment terms - particularly if you have experienced a dip in trade.
Summary
Optimising cash flow should be a priority for every business right now. Even those in a good cash position can find room to improve. Improving your cash flow helps to protect your business against market shifts and the many ripple effects of the pandemic that we can’t yet predict. Finally, optimising your cash flow will also help your business to take advantage of opportunities that come your way as the world recovers, ensuring that you don’t get left in the dust.
Коментарі