How to manage your cash position in a down economy

A drop in demand, customer delinquencies, unpaid vendors—if you own a business, these are the kinds of scenarios that can keep you awake at night. While it’s only natural to be concerned if you’re currently facing any of these difficulties, it won’t do any good to lose sleep over them.

The best way to steer your company through uncertainty and volatility isn’t to fret over larger forces you can’t control, but to be proactive about the things you can.

For instance: Instead of sitting up worrying about the effect of the consumer price index on demand, you can put your mind at ease by working to shore up your business’s cash flow. A recent global survey shows that more than 60% of accounting and finance professionals believe understanding real-time cash flow has become increasingly important for the success of companies.^{Disclosure 1} Anything you can do to improve this key performance indicator of liquidity can help ensure you have funds on hand to adapt more quickly when problems arise. (Talk to your relationship manager about the amount of liquidity you need. It may change from year to year or month to month.)

Shoring up your cash flow can help ensure you have funds on hand to adapt more quickly when needed.

Better managing your cash flow is an easy starting point for building up a proactive mindset that will help you make it through rough times. To help you do just that—and rest a bit easier in the process—here are eight more ways to improve your cash position.

1. Upgrade your accounting system.

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

If you don’t have a mobile commercial banking app, it’s worth looking into what benefits one might provide at this stage of your business lifecycle. For example, being able to approve payments and transfers at any time, from anywhere, can save time and worry. The ability to safely and securely access data on deposits and balances can also make forecasting easier—giving you one less reason to toss and turn worrying about your business’s future.

2. Tighten up your receivables.

When you’re facing cash flow challenges, chances are some of your clients or customers are too. During tough times, a little goodwill goes a long way in maintaining crucial business relationships.

Consider using friendly automated reminders, via email or text, to follow up before and after payment deadlines. If a client is in a tight spot, this is a much better option than enforcing late fees, which can strain valued customer relationships.

Reaching out to offer an extended payment plan before contacting collections is another way to support valued clients that are struggling with their own sleepless nights. Also consider using third-party vendors. They can offer clients a variety of ways to pay, follow up when deadlines pass, and provide you with reports that will give you a snapshot of your current collections accounts.

3. Prioritize your payables.

If it’s a cash shortage that’s keeping you up at all hours, ask your suppliers and vendors for an extension. They may offer different terms to keep you on as a customer. But instruct your financial team to do so strategically.

Consider making payments to smaller, more vulnerable partners first, because cash flow is likely an issue for them as well. Supporting them today can ensure you don’t have to go scrambling for new sources tomorrow—which could wind up costing you more in the long run. Also prioritize taxes, payroll, utilities and rent, and any bills that are more than a month past due.

4. Rethink your inventory strategy.

For nonessential items, put additional orders on hold when or before inventory starts to build. For perishables, keep a close eye on expiration dates to avoid waste. And for essential items, talk with your relationship manager and risk management team about the best move. What are they hearing about supply chain disruption? Where are they seeing pain points in other industries, in terms of what the item is or where it comes from (and travels through)?

“Buying excess inventory isn’t just a way to hedge against supply chain disruption and protect against seasonal, cyclical, or market valuations—it’s also a way to hedge against inflation,” said Jim Pirouz, head of capital markets at Truist Securities, in our Purple Paper^sm: “Imagine tomorrow. Build it today.”

5. Take another step in digital transformation.

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 credit cards, wire transfer, or Automated Clearing House (ACH) so that you can hold on to cash longer.

Also 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 awake worrying about mail delays. Similar to working out your receivables, third-party vendors can help with this.

6. Have the accounting department update financial software and employee expense policies.

Before you consider putting your old financial system to bed, find out if there’s a software update. Installing updates can add new features, protect against the latest types of cybercrime (such as malware), and improve system performance.^{Disclosure 2}

Another simple step to take here: Ask your accounting office to review business expense policies with your staff now—and as new hires are added. Also remind accounting that employees must receive proper authorization before making any purchases—and begin questioning (and denying) expenses that are not warranted.

7. Emphasize the importance of active cash flow management.

Is your staff awake to how their actions affect your business’s cash flow? Employee education on cash flow and the cash conversion cycle should be an annual consideration and a must for new hires. Sharing our article “10 steps for better cash management” is a good place to start.

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

8. Re-evaluate your future business needs.

Sometimes you may need to put long-term investments on hold to keep your business operations running smoothly during a recessionary period. But in the event you do, make sure to continue discussions with lenders and financers about your goals and any new initiatives that will need financing.

Hitting pause can give you more time to evaluate and pick or wait for the best option. You also may find you can make a move sooner than you’d expected.

Rest a bit easier

You might not be able to set the economy straight, but managing your cash flow is a straightforward way of ensuring your businesses can make it through challenging times.

With smart adjustments to your cash position, you’ll have a much easier time overcoming any financial obstacles that stand between you and a good night’s sleep.