With the COVID-19 pandemic’s lingering impact continuing to have enormous economic implications, a number of businesses are encountering cash flow issues, particularly those that are struggling with profitability and holding low cash reserves. Various sectors, such as tourism, hospitality, entertainment, air transportation, and retail companies are learning an enormous lesson in rather severe circumstances: a reliable source of cash flow is pivotal for all businesses to manage and withstand the effects of an unforeseen disaster.
A 2017 report from Business Insider confirmed that 82% of small businesses fail because of cash flow troubles, as numerous companies hemorrhage out more money than they receive, leading to shortages that could leave insufficient funds to cover payroll or other operating expenses. A crisis, like the one created by the spread of COVID-19, can certainly accelerate the speed of a company’s downfall when the proper means of cash flow are seemingly evasive.
Southwest Recovery Services — a nationally renowned full-service collection agency located in Dallas, Texas, with separate offices in Austin, Houston, San Antonio, St. Louis, and Oklahoma City — provides a few tips on how businesses can smartly enhance their cash flow potential.
Deal With Your Debtors
As the COVID-19 outbreak proceeds to stymie businesses, it is imperative to manage your debtors because companies and people are less likely or incapable of settling up on their balances, Southwest Recovery Services states.
To better situate yourself in handling your debtors, you can: issue invoices to your customers immediately when the opportunity presents itself; examine the reports of your aged debtors frequently to identify when these customers have surpassed their aged credit terms (rather than turning down the business of a customer who tends to pay in a slow manner, you can implement a cash on delivery policy); when applicable, establish credit limits and monitor consumers closely; analyze your methodologies and be open to the idea of tightening your current credit processes; conduct credit checks on all potential new customers; ask your customers to commit to a deposit at the time an order is finalized; if possible, offer discounts to your customers as a show of appreciation for the early payment of invoices; and contact your bank to confirm if they have other transactional account options that might be more suitable to your business needs.
Track Your Expenses
Monitoring your expenses is a paramount aspect of business, one to be highly wary of, according to Southwest Recovery Services. You must develop projections and carefully budget, as it will assist you in discovering expenses that differ from your initial expectations.
Some strategies in controlling your expenses are: requesting quotes for any major expense items, helping to avoid unnecessary surprises; seeking fixed costs if feasible, which will ensure you greater certainty on your cash flows; and communicating with your business partners, staff or family to determine if there are other areas of your business that can afford to see expenses diminished.
Timing Is Essential for Cash Outflows
Businesses will constantly have superior control of their cash outflow than what is typically experienced with regards to the inflow, Southwest Recovery Services concurs. As a result, you should uncover methods to minimize outflows when your company is contending with reduced inflows. A seasonal business that depends on the summer months for the majority of its cash inflows, for instance, would be advised to attempt to pay off its larger expenses during that same time.
Further improving your cash outflow timing, you may consider taking advantage of your credit terms by making payment on the invoice’s due date, negotiating a discount on invoices in which you pay upfront or early with your suppliers, and by contacting your suppliers swiftly, figuring out if you can extend your payment terms or devise a payment plan if cash flow is problematic.
A treasury plan for cash management could also pay dividends for companies, adding to their overall business risk and continuity approach, notes Southwest Recovery Services. If this is decided upon, it is vital to take a full ecosystem and end-to-end supply chain view, since your plan to manage cash will have consequences for both your business and customers.
A few final cash-flow management strategies to contemplate include: ensuring that you have a vigorous framework for managing supply chain risk; confirming that your own financing remains practical; focusing on the cash-to-cash conversion cycle; channeling the mindset of a CFO throughout the organization; re-considering your variable costs; revisiting capital investment plans; concentrating on inventory management; extending payables wisely; managing and expediting receivables; observing alternate supply chain financing options; auditing transactions for receivables and payables; understanding your business interruption insurance; considering alternate or unconventional revenue streams; converting fixed to variable costs whenever applicable; and thinking past your business establishment.
Final Thoughts From Southwest Recovery Services
Companies need to integrate a thorough means of cash-flow management into their overall COVID-19 risk assessment and action planning, as it will be instrumental in returning to routine business operations. Although certain companies may have reached this stage of the pandemic without excessive inconvenience, management teams can still evaluate their cash-flow requirements, develop appropriate actions under various scenarios, and assess possible risks within their customer base or supplier network.
A collection agency can be a tremendous asset in these present circumstances and Southwest Recovery Services offers a broad array of options that can get your business through its cash flow dilemmas stemming from the COVID-19 outbreak.
First, there is the debt recovery process which requires no upfront fees for a client to refer an account for collection. Rather, a client is only responsible for paying the fixed contingency rate after the debt is successfully recovered.
Contingency collection is the most economical solution for debt recovery, assuring your business of a greater financial return by utilizing customized programs, and demanding no upfront fees.
Judgment collections are ideal for creditors who have been granted civil judgments that permit the seizure, attachment, and sale of real estate holdings, accounts receivables, wage and salary garnishments, insurance proceeds, business equipment, intellectual property, bank accounts, non-exempt property and assets, cars, trucks, motor homes, motorcycles, boats, jewelry, and personal property.
An “Early Out Program” is intended to find additional insurance billing and to urge patients to pay promptly, removing the need for extensive collection activity. Revenue cycle management specifically handles claims for medical billing companies, while accounts receivable management seeks to boost cash flow and financial predictability for a client.
If you are interested in even more business-related articles and information from us here at Bit Rebels, then we have a lot to choose from.