1. Increase your communication with your key customers.
Check in on a weekly basis especially if the customer has past due balances. Consider having the CFO or other leadership team members reach out to their counterparts at the customer, establish a relationship and follow up on open receivables as necessary. Many times, having a senior management member involved will lead to quicker payments.
2. Establish goals for your accounting department to keep accounts receivables as current as possible.
Set what percentages are acceptable in the various aging buckets (e.g., current, past due categories) and manage accordingly. For example, the goal could be 80% of receivables in the current bucket and only 20% past due. Perform a weekly review with the accounting team to track progress against the stated goals. The more attention and focus you put on this usually leads to better results.
3. Establish an early-pay discount program to encourage faster payments.
Terms such as a 2% discount on 10-day payments is a good example of this type of discount. This could be designed as a short-term policy during the uncertain economic times and decided later whether to continue.
4. Start requiring cash deposits or pre-payments on certain types of longer-term or larger sales orders.
Many companies do not require cash payments upfront during longer-term sales or manufacturing cycles, and they should consider doing so. You can possibly be flexible on pricing or other margin concessions in order to help implement this with customers.
5. Get your customer invoices out fast.
Do a walk-through of your invoicing process to make sure there are no hidden bottlenecks or other delays. Review your systems to make sure they are being utilized to the fullest and that there are no delays due to manual processes or breakdowns in communications between internal departments.
6. Be aware of scope creep or additional services that could be billed to customers.
Many customer projects (based on industry) have additional work that ends up being performed (for free at times) that was not outlined in the contract or considered at the point of sale. This additional work could present opportunities to bill for additional services in the form of change orders which could increase revenue and cash flow.
7. Consider invoice factoring.
Invoice factoring is the process where you sell your unpaid customer invoices to a third-party factor. I would not recommend this step unless you are in immediate need of quick cash as the cost or discount given to the factor is relatively high. However, given the need for cash and the situation this could be an option to pursue on occasion.
8. Consider selling off older or idle equipment.
Older, unused equipment takes up space and can be converted to cash. Many tech departments will have a larger inventory of older servers or unused computer equipment. Manufacturing facilities will have equipment that is no longer useful or used efficiently.
9. Clean up your inventory.
Slow moving or obsolete items can be sold at a discount in order to generate cash flow. Analyze the profitability of your products and stop selling lower margin products and loss leaders if possible. Every business usually has a lower performing or losing product offering that can be eliminated.
10. Consider leasing versus buying.
Leasing, while more expensive in the long run, in many cases will have a more positive cash flow impact in the short or more immediate term. Cash and working capital can be preserved until the economic environment is clearer. Items in the technology arena such as servers or laptops or heavy machinery on the factory floor can all be leased versus purchased. Monthly payments will be a fraction of the cost to buy.
11. Renegotiate your payment terms and pricing with key vendors.
It’s a good idea to divide up your vendors between strategic and one-off. For the strategic vendors, work out new payments plans and terms. Don’t be afraid to ask or try as many vendors are willing to work with you as they need your business as much as you need theirs. Many landlords will also be willing to work with you if you are unable to pay your rent on time.
12. Do not pay bills early.
Make sure you are taking advantage of full payment terms. Bills should be paid on their due dates and not any earlier. Check with your accounting department and review your vendor payment history and identify if there are any early pays or opportunities to delay payments further.
