Cash crunches are a fact of business life. Clients drag their feet in paying you. Vendors want their money. And now COVID-19 means that even businesses who may have weathered those ups and downs relatively unscathed in the past are having trouble mitigating cash flow woes.
While there are no simple answers for every business, here are a few strategies to consider.
1. Give Customers Incentive to Pay Early
More than half of B2B payments in the US are late. That might be less of an issue for a large corporation, but for a small business, getting each payment on time is a necessity to pay its own expenses. So how can you get clients to pay you sooner?
Give them a reason to do so. You could discount payments made within five or 10 business days, for example. Going forward, you could charge a late fee for payments made after an invoice is due. It may well be worth losing a little profit to be assured of being paid on time.
2. Consider Financing
If COVID-19 has ground your business to a halt, it’s time to consider what you’re going to do to stay solvent in the coming weeks and months. As part of the $367 billion in small business assistance from the SBA. these include:
● Economic Injury Disaster Loans of up to $2 million and
● Paycheck Protection Loans of up to $10 million with partial or full forgiveness for those who keep employees on the payroll.
Even if you’re doing okay right now, run the numbers to see how things will look in the short-term. It may be wise to apply for financing now (or even open a business credit card) before you really need it. Crowdfunding is also rising in popularity for businesses with loyal customers.
3. Talk to Your Vendors
If you don’t already have payment term agreements with your vendors, now is the time to open that discussion. Vendors are in the same boat you are, and they’d rather get paid later than not at all. Consider opening tradeline accounts if they’re available; these give you some breathing room on paying invoices, and they help you build your business credit.
4. Look at Your Expenses
This is a good practice any time, but especially when things are as uncertain as they currently are. Look at where you’re spending money in your business and see where you can save. Maybe you can spend less on your business phone plan if you switch providers. Or perhaps you’re not really using that software you’re paying for and could downgrade to the free plan.
If money is really tight, it may be time for some sacrifices. But think it through and try to cut expenses that won’t leave you in the lurch when business starts to pick up again.
5. Keep Marketing
Even if you feel you should stop marketing right now, don’t. Certainly, pull back on marketing expenses that aren’t helping you attract new business. There are plenty of free marketing tools you can use to continue to build your brand and get customers coming to you...even if they can’t physically visit your location for the time being. Companies like Yelp and Facebook are offering free or reduced-cost advertising and services.
Write content on your blog that appeals to your audience. Stay in touch with social media and email, and find ways to create community and offer support during these unusual times.
Find creative ways to market and sell products. Many restaurants, who can no longer offer dine-in services, are focused on delivery and takeout, or selling gift cards to be used later. If you usually hold in-person events, you may be able to move them to digital. The key is to continue to create value to your customers.
Creative problem solving is the skill that sets successful small businesses apart from their struggling peers. In times like these, be creative as you evaluate ways to go over, under, around, or through the cash flow challenges facing your business in these difficult times.
Don’t take anything off the table.
Remember, it’s your unique ability to find creative solutions to challenges that will help you survive and even thrive in the long run.
About the Author:
Gerri's been guiding individuals through the confusing world of finance and credit for 20+ years. She is the author or coauthor of five books, including her most recent, Finance Your Own Business: Get on the Financing Fast Track. Today, Gerri serves as the Education Director for Nav, an online platform that matches small business owners to their best financing options and gives free access to personal and business credit scores.