10 tips for a cash flow crisis

Sometimes, even when you’ve done everything possible to be a good cash manager, you run into a problem.  There are steps you can take to skillfully weather your cash crisis.

  1. Determine the cause of the problem – If it’s just a timing issue, you might be able to ride out the storm with some help from your vendors.  If it’s a more serious issue, you’ll need to take more drastic measures.
  2. Review your past due accounts – Make collecting on past due accounts a number one priority.  Always ask for a date that payment will be issued.  If they can’t give you a date, ask them when their next decision point is and let them know you’ll be calling that day.
  3. Offer Solutions to Your Past Due Customers
    • Take a credit card
    • Set up a payment plan (better a portion today than nothing for weeks)
    • Offer a discount for immediate payment in full
  4. Offer Early Pay Discounts – Early pay discounts are expensive and not something I recommend employing on a regular basis; however, in times of cash crisis, this is a good way to accelerate inflows.  Offering these incentives for new invoices may get the cash in the door faster.
  5. Collect Deposits – Try to get deposits up front for new projects.  This will give you funding to pay your staff and expenses associated with that project.
  6. Prioritize Payments – Take a look at your tactical cash flow report.  Make sure you’ve got payroll covered.  If not, immediately figure out how you’re going to make payroll.  Once you’re 100% satisfied you’ve made payroll, prioritize your vendor payments.  Try to get an idea of when you’ll be able to pay vendors.
  7. Manage your vendors – Call your vendors (or at least take their calls!).  I know from experience that you don’t want to take those collection calls.  No one does.  I also know that every vendor wants to know that they’re important and that you do want to pay them.  You’re a lot less likely to be thrown into collections if you talk to your vendors, explain that you are having cash flow problems, and see what they can do to work with you.  Make sure to prioritize your vendors and don’t make promises you can’t keep.  Lying (even unintentionally) will never work in your favor.  If you simply can’t make any guarantees, tell them when your next decision point is.  “I’ll be reviewing payables again next Tuesday, and you can follow up with me then.”  Almost every business has had a time when they experienced cash flow problems.  Most vendors will understand as long as you’re communicating and making an attempt to get them paid.
  8. Evaluate Staffing – Don’t be too hasty with layoffs. Overburdening your remaining staff could lead to further problems.  You want to have the right number of employees for the workload you have.  This is a good time to get rid of non-performers and other positions that aren’t really necessary.  Also consider bringing your staff into the discussion.  Some of them might want to reduce their work schedule/salary for a couple of months. Your team might surprise you; perhaps they’ll willingly reduce their salaries and time to ¾ to avoid losing their co-workers.  You never know until you ask.
  9. Institute a Spending Freeze and make sure your employees know about it.  If it’s a small cash problem, maybe you just want to cut certain expenses.  Be careful with cutting marketing expenditures as this can often perpetuate the problem.
  10. Call Your Landlord – Surprisingly, rent is one of the bills you can usually delay paying.  The reason is simple:  It will cost your landlord a lot of time and money to find a new tenant.  They want to keep you as a tenant.  Call them and discuss your situation—chances are they’ll work with you.  At a minimum, they’ll probably extend your grace period.  You can also take this opportunity to try to renegotiate your lease.

There are a lot of things to think about when you’re in the middle of a cash crisis.  Following these steps should help get you moving in the right direction.  If you got caught in a cash crisis due to lack of planning, make sure forecasting and financial reviews become a priority.

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About Kelly Totten

Kelly Totten is the CrackerJack Accountant helping creatives grow their businesses. See all of Kelly’s articles

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