Cash management in uncertain times

A challenging economy can introduce business issues you haven’t had to address before, like a drop in demand, customer delinquencies, or vendors that you can’t pay. That could mean putting your long-term objectives on hold in favor of your company’s short-term viability.

Take action to boost your cash position and help your business make it through until things improve.

Upgrade your accounting system.

Make sure your accounting system is operating smoothly and efficiently to prevent costly errors. Automating basic functions—like invoicing and processing—will help you quickly identify and address any issues.

Tighten up on your receivables.

Don’t hesitate to follow up with your customers when it’s time for them to pay. You need to stay ahead of payment delays. You may have to enforce late fees as long as they don’t put valued customer relationships at risk.

Prioritize your payables.

If you’re short on cash, ask your suppliers and vendors for an extension—they may offer different terms to keep you on as a customer. Consider making payments to smaller, more vulnerable partners first, because cash flow is likely an issue for them as well, and if they don’t make it, you'll have a whole new problem on your hands.

Consolidate your inventory.

When inventory starts to build, put additional orders on hold, especially for non-essential items. Keep a close eye on expiration dates to avoid waste.

Go digital.

Electronic payment methods can help save you time and money on processing while also improving your cash flow. Use digital services to make just-in-time payments by ACH, credit cards, or wire transfer so that you can hold on to cash longer. Provide your customers with a way to make payments online. Most electronic forms of payment offer tracking options that let you know exactly when money hits your account, so you’re not kept waiting by mail delays.

Update your existing financial system.

Before you consider replacing your financial system entirely, find out if there’s a software update. Save by simply adjusting or upgrading systems that you already have in place. Make sure your financial system is fully integrated with other functions so that you can easily access your account data at the push of a button. Maintain control over business expenses by making certain that your employees follow existing policies and receive proper authorization before making any purchases.

Emphasize the importance of active cash flow management.

Does your staff realize how their actions affect your business’s cash flow? In a recent Ernst and Young webcast, nearly half of the 2,100 participants agreed that the biggest obstacle to establishing a “cash culture” is helping managers and employees understand their impact on cash flow.¹

Start with education on cash flow and the cash conversion cycle.

Then, have your finance team produce daily reports on key metrics like cash position, working capital, and week-to-week cash flow forecasting. With accurate numbers, you can make decisions that bolster your short-term finances and think more strategically about long-term prospects.

Re-evaluate your future business needs.

You may need to put long-term investments on hold to keep your business operations running smoothly.

Access to capital can be fleeting, so always be prepared for a frank and open discussion about your business with your lenders and financing partners. Let them know as soon as possible that you might need financing. You’ll want more time to evaluate and pick the best option.