If you have a pile of invoices mounting up that you are stressed about and going to be unable to pay on time, there is no better time than now to start communicating with your suppliers to let them know. The worst thing that can happen to a business in times of tight cash flow is not to receive payments they are counting on, but a little forward planning can prevent a catastrophe, not only for you, but for your supply chain too.
Many businesses will have been negatively affected by the COVID-19 outbreak and the resulting isolation measures all over the globe. As much as I hate to be the harbinger of doom, it is likely that the worst is yet to come in economic terms at least. It is so important now for business leaders and finance directors to be looking at their cash flow forecast and preparing for worst case scenarios.
One way to do this is to assess the risk to your customers - you can do this through several means; by purchasing freshly investigated credit reports on them but also using your own research to look at the risk to their industry in the country they are located and perhaps the specific region to see the spread of the virus there. Have you talked to them to see if they are still operational? Be aware of whether their payment times have slowed down - are they delaying more than usual or asking you for extended credit terms? All of these factors need to be worked into your cash flow until the income shows the worst case scenario over several months.
Next, look at your supply chain, study your likely costs during the worst case scenario if this persists for several months, and ask yourself these kind of questions:
- Could you manage with less raw materials or supplies to create your product or service if demand was significantly reduced? What items could you do without?
- Are your utility and sundry bills likely to be significantly less in the coming months?
- At which point, if any, would you need to reduce your workforce as a result of COVID-19?
- Is it possible to give up your company premises for the foreseeable future, perhaps adopting a permanent work from home scenario?
- Where else can you save money by cutting costs?
You may find that, even if sales reduce significantly, you can still continue to trade by taking early action to scale back, reduce costs and/or increase sales, perhaps by additional marketing expenditure, now that you have a captive #WFH audience. If every business plans ahead and communicates with their clients and suppliers, we are less likely to see the domino effect that late payments can cause on a global scale. Your cash flow forecast will let you see where the crunch times are likely to come so that you can plan for them - and you don't need to be an accountant to do this - a simple spreadsheet template can be used and can easily be sourced online or contact your local business support centre for help if you are lucky enough to have one.
Once you see where your cash flow falls into a negative or loss-making scenario, look at the costs which are payable during the start of or prior to that period and see what happens if you move them back a month or pay only half. If this solves the issue, it is time to speak to your own suppliers now and start negotiating extended credit terms, perhaps paying for goods or services in smaller installments over a longer time period. If they have a few months or weeks to plan for this, it will be far more palatable than if they were expecting the payment last week - so time really is of the essence. If this doesn't entirely solve the issue, you may need to further cut costs or look at ways of raising capital through taking a business loan, selling shares, assets and/or looking at local government assistance schemes. Perhaps you also need to come up with new ways to sell that you hadn't considered before, or even new product lines altogether that our now in high demand, such as ventilators, medical equipment and supplies, online webinars and/or training.
Whatever the case, future planning is an ongoing part of a company's success mechanism and cash flow forecasting should never be underestimated. As with many rules in business, communication and maintaining good working relationships with customers, suppliers and your workforce is the key and there has never been a better time to reach out and make contact.