Surviving a Cash Flow Crisis

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For small and medium sized businesses (SMEs), managing cash flow efficiently and effectively is an ever present challenge! Bare in mind that one of the essences of businesses is to get money in as quickly and completely as possible, whilst delaying paying any bills for as long as possible, thus retaining useful cash within the business. We know that most large companies actually have paid staff to slow down cash outflow on their purchase ledger side and to speed up invoicing and receipts on the credit control side!

As an SME, you often experience that talking to a larger company purchase ledger clerk to speed up a payment, is like trying to get 'blood out of a stone', while a call from their credit controller generally spoils your day! The SME usually does not have paid staff like these to manage cash flow, despite the fact that internal revenue assets and margins for error at any one time are likely to be much smaller!

So here are ten tips on how to try to manage the ins and outs of your cash flow:

1. Keep a list of all payments due for the next three months and after giving payroll priority, see what payments you can stall without damaging relationships with suppliers or sub-contractors. Behave like a big business - review your payment arrangements and outstanding bills as a normal weekly part of managing. Don't feel badly about trying to delay payment - someone else is doing it to you!

2. Manage the credit that you give to others. No one should be allowed to go over 60 days / two months without paying you what they owe. So another weekly management task - check invoices and payments in. Over two months and you will need to get 'personal' by talking to someone - copy invoices and reminders are unlikely to have any further effect. The longer you are not talking directly with someone who can make the payment, the less likely it is that you will receive the money and will need to write it off, or offer an unplanned discount, or proceed to debt-collection or to court.

3. Invoicing is a priority - invoices don't enter into the payment process until they are received. You need the money back that you have spent or need to spend. Invoice early, more frequently, and never put off the weekly administrative task of invoicing, reminding and demanding. Someone else is already keen to get hold of your money!

4. Planned small percentage discounts can speed up payments by invoices; last ditch offers of discounts against unpaid bills have less effect and may even persuade the non-payer that further delays might make the problem go away, as your business fails before theirs!

5. Ask for, and negotiate, payments in advance or invoice by stages if what you deliver is stretched over time, e.g., a payment up-front; a deposit; a progress payment and a completion payment, in-line with your costs and outgoings.

6. Manage your lines of credit to suppliers and take advantage of their credit control expectations. Look for 60-90 days as a reasonable period. Make sure that you safely use credit periods for 'statutory' payments, e.g., to HMRC, local authorities, energy suppliers etc.

7. Work on and maintain good relationships and arrangements for short term loans, etc. Find, cultivate and use responsibly sources of finance - banks, other businesses and family. Borrowing money before you are in crisis signals good cash-flow management and encourages confidence in you; asking for a loan when you are at the end of your tether, does not!

8. Manage any credit and debit cards to address cash flow ups and downs. Do not use these simply to dig a deeper money pit. Multiplicity of credit cards does not wipe out debt - despite the attractions of zero balance transfers, these require on-going management of a committed and powerful kind to reduce debt.

9. Manage overheads and infrastructure costs - another regular review task - at least monthly. This is particularly important if your business is finding times hard and is shrinking. It is very common that when SMEs downsize in terms of staffing or production capacity, they rarely downsize as much as they should in terms of facilities and overheads. There can be tendency to retain the 'head office' capacity while losing the productive end of the business and income.

10. Finally, take action to manage cash-flow continuously. Talk to advisers and accountants early - evidencing a managed cash-flow situation rather than leaving this until it is obvious that there is a terminal crisis.