Can You Net Payments And Draws On Debt Cash Flow How to Ease Your Business’ Cash Flow Crunch

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How to Ease Your Business’ Cash Flow Crunch

Many companies are short of cash right now. Whatever the reason for your short-term crisis, you need to start looking strategically at your existing cash reserves and use creative budgeting solutions to position your business as a great customer, vendor and industry leader. Here is a short list of ideas to help you start planning your own creative solutions.

1) Keep your existing cash. There are two main flows, out and in. You must stop all unnecessary purchases immediately. For the most part, you should not approve new expenditures unless you have an emergency, the expenditures directly provide value to your customers, or they will generate revenue immediately. It’s not personal; it’s just a new company policy. To improve your cash flow, communicate with those who owe you money and develop a partnership as you work together. Mark the expected receipts on the calendar and follow up if the commitments are not kept.

2) Ask employees for cost-saving suggestions. At my mother’s retirement community, managers asked residents for suggestions on ways to save energy. For example, a resident suggested that the community should turn on only half of the ceiling lights in many long corridors; using every other light will save half of the lighting costs in these areas. There were some other great ideas. Ask people to think of ways to save money or be more efficient. What could you live without? Tell the team that you expect everyone to call you (or their team leader) within a week with their suggestions.

3) Exchange. Whether you owe someone or they owe you, bartering can be beneficial when money is tight. The best time to trade is before you owe someone, because you should always try to live up to the agreement. However, if there is no money and you owe money to the seller, you can offer goods or services to settle the debt. If your customer owes your business money, contact the business owner and request goods or services to settle the debt. Try to acquire goods and services that directly or indirectly generate cash flow or reduce your expenditure on essential customer services. If your customer owes you and you owe another company, your company’s counterparty can even negotiate a deal so that the company that owes you actually provides goods or services to the company that you owe. Depending on your business relationships, bartering can be profitable and good for business. (It’s always a good idea to have a lawyer draft the contract. Additionally, you’ll need to notify your accountant of any barter transactions.)

4) Negotiate payment terms. If the exchange has failed and you still cannot pay as agreed, you will need to renegotiate the payment terms. Call the vendor’s accounts receivable manager and ask for flexibility while you work on a short-term cash crunch. If you have facts and figures, please provide them. For example, you could say, “Hi! This is Tracy, Accounts Payable Manager at XYZ Company. I am calling you as one of our most valued vendors to ask for some flexibility in payment terms while we deal with a short term cash flow problem. Fortunately, our sales are still fairly strong given the economy and our accounts receivable manager is working with our debtors to better predict the timing of our receipts. We have taken steps to reduce costs by $50,000 per month and have plans to further reduce costs based on employee contributions. In order to maintain our profitable relationship for the brighter days ahead, I would like to propose that we pay you 40% of what we owe now, and then 15% of that original amount for each of the next four months, and if we can pay you sooner, we will do it. I see here that your terms are net 15 and then you charge 2% interest for each month after that. Who would I talk to to see if we can get the interest down to 1%?” Convince the seller that you are capable of honoring the new contract. You can use similar tactics to get people to pay you. Show concern for the other business, positive turn your offer around and be a strong advocate for your business.

5) Take it back. If you believe you can resell the goods, you can offer to reduce the debt by accepting the return of the product minus the 10% restocking fee and shipping costs.

6) If a customer pays you back on schedule, sell that customer an additional product for cash only (plus a small balance). Be practical but positive when proactively communicating your desire for continued business. It would be foolish to add debt to a failing business, but selling on a cash-only basis will generate cash flow for you and may help them stay in business so they can pay their debts in the future. Alternatively, if you need to buy something with cash, pitch the idea to your supplier. Most companies today would love to get some cash.

7) Maintain a relationship with other companies that are in a cash crunch. It is in your best interest to maintain existing relationships and make them work now and to mutual benefit in the long term. If you contribute to another company’s financial problems, you may miss out on that relationship when the economy starts to improve again.

8) Keep the organization lean and strategically organized. Look at each position in your organization and pay attention to those positions and tasks that do not provide value to your bottom line. With team input, set reasonable productivity goals and communicate them both formally and informally. Treat this situation as an emergency and strategically minimize positions that are not critical to your mission. Alternatively, if you find that highly paid employees are spending a lot of time on administrative tasks, you may want to hire a temporary administrative assistant to take care of the nuts and bolts so you can establish higher standards for professionalism and set higher goals. It makes sense to assign the work to the cheapest resource. When downsizing, it is important to look at what the company will need in the long term. Some companies have a habit of cutting jobs and then adding them again after a while. While this might temporarily improve the balance sheet, the cost of rehiring and then retraining for those jobs far outweighs the amount saved. Keep morale and productivity high by being logical and calm in your HR decisions.

9) Continue to be enthusiastic about your product and the benefits it offers. Be excited about every improvement or deal you make and every dollar that’s in your bank account. After all, the plans you make now are the foundation for your successful future.

10) Focus your strategic plans on your core business. Many companies want to pursue greener pastures when the economy is struggling, but I recently read a Harvard Review article that explained why diversifying too much is a bad idea. If your company is struggling, you probably won’t have the resources to create new distribution channels and break into a new (and possibly shrinking) market segment against entrenched competition. It’s like trying to build a house on a foundation of sand. In many cases, the best idea in difficult times is to focus on the core business, invest in quality and customer satisfaction as best you can, and stick to the long-term direction the company has set. Very few desperate people make logical decisions. You don’t want to close new deals at the expense of existing ones, which often happens. Definitely build on your existing customer base and strengthen your core business offering. But be aware that many successful companies actually sell off their diversified holdings during tough times so they can focus like a laser beam on the most important core business processes. Diversification makes sense for personal investments, but in business your strengths will lead the way.

Dot Olonovich is a technical and business communications consultant at Logical Writing Solutions, Inc., a debt-free company. Learn more about Dot at You may distribute this information freely as long as the entire article and this bio paragraph are included.

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