Action Plan, Part 3 of 10

Cash Flow Fixes
by Lindsey Norris
Action Plan Online

Cash flow is arguably the most important aspect of any business. You can survive declining sales or a stretch without profits, but run into a cash crunch and you can quickly lose suppliers, employees, your good credit rating and, ultimately, the company. Plus, with today’s more cautious credit markets, you may find it harder to rely on loans or lines of credit to cover your cash flow lapses. Even if your cash flow is running as smoothly as the North Saskatchewan, improving it will help if you ever want to sell, seek investors or go public. Here’s how to do it.

Put Your Banker on Speed Dial
Pull your yellowing cash flow forecasts out from that desk drawer and study them. Update them. Then create a weekly cash flow sheet and call your banker at the first sign of trouble. “Don’t go to your banker at 11 a.m. on a Friday and say, ‘I have payroll going out at noon and I don’t have the money,’” says Gary Fletchett, a CA and author of the recently released book, The Financing Toolkit for Small & Medium Businesses. “Being on top of your cash flow and communicating with your banker is critical.”

Keep Suppliers Informed
“Relationships with vendors and suppliers are a key asset,” says Scott Morris, the Calgary-based president and CEO of Results.com Canada. “If you can’t pay on time, you must communicate the position you’re in. But don’t phone at the last minute; it creates difficulties in their own accounting.” Tell them when they can expect the money and ask if they would like instalments. They’ll probably take it; Morris points out that the economy has spurred plenty of renegotiations between vendors and clients.

Exploit Your Niche
If your cash flow crunch is due to a one-time problem, and not a flaw in your operations, a one-time handout might be enough to get you through the tight spot. Export Development Canada (EDC) offers financing to companies trying to export. The Centre for National Business Development offers funding for everything from real estate to staff training. Many organizations offer R&D support, including the National Research Council of Canada, and “the Business Development Bank of Canada recently beefed up their lending capacity,” says Morris.

Sell Your Receivables
Many companies have a lag between providing goods or services and being paid for them. You can sell your accounts receivable to a factoring company. The company takes a percentage for the service, but it isn’t a loan, so your credit score won’t affect it. (It’s also different from invoice discounting, which is a loan – the receivable is used as collateral.)

Get Paid Earlier
Your cash flow is only as reliable as your customers’. Send invoices immediately. If you invoice the day after your customer pays its bills, you’ll have to wait another 30 days. Give early birds discounts or charge interest (at a predetermined rate) for stragglers. Find the average payment term in your industry and stick to it. “People often don’t have a followup policy,” says Fletchett. “You should require a phone call after so many days and develop specific credit terms: payment is due in 15 days or 30 days.” If the account remains unpaid, you do have options – credit collections agencies, small claims court. But keep in mind that suing is expensive (filing fees, witness fees, unpaid wages) and your relationship with that customer will likely never recover. Save it as a last resort; gaining a reputation for litigiousness won’t help your business.

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