These are difficult and challenging times for many businesses and it will be a significant time before we can assess the full economic ramifications of the COVID-19 pandemic.
The speed in which the economic landscape has changed, however, has left many businesses with an unexpected and significant downturn in productivity, and without sufficient time for effective contingency planning. Alongside supply chain disruption, this is likely to have a substantial effect on cash-flow.
Here are some tips to help with managing cash-flow:
- Get to know your customers – if you can, spend some time analysing the payment performance of your key customers. This will enable you to identify any change in payment practices, which could be an indicator of financial problems, and to take steps to address such changes.
- Avoid extending unnecessary credit - this applies to both new and existing customers. It is particularly tempting to extend credit to long-standing customers or those with whom strong personal relationships exist, but keep this under review; if a customer already owes you significant sums, think twice about extending further credit no matter how strong the relationship.
- Confirm and monitor payment terms – knowing when payment is due can be crucial to managing cash-flow and debt. Robust processes can identify problems at an early stage and allow steps to be taken to address those.
- Consider agreeing creative payment terms – you may wish to offer an early payment discount, for example, or discounts for “bulk buying”.
- Invoice promptly and accurately – raising invoices in a timely and accurate manner can mean earlier payment and also prevent future collection issues arising. The longer it takes to invoice, the longer it will take to get paid, so why wait?
- Make payments easier for customers - consider offering on-line payments or direct debits, where appropriate. The easier it is to make payment, the more likely it is that payment will be made promptly.
- Review billing and collection processes - is it possible to send invoices by e-mail to avoid unnecessary delay, for example. Consider also sending reminders in advance of the payment due date and contacting customers as soon as an invoice becomes overdue for payment – often late payment results from invoices simply being forgotten.