COVID-19, so far, has had far-reaching impacts on global trade. Your business could be one of the many curious about protecting cash flow during the current COVID-19 market disruption.
U.S.-based small and mid-sized businesses import one-third of all U.S. imports according to census data from 2016. Since exports from areas impacted by the coronavirus are already happening, businesses face a variety of challenges. Lower stock levels, missing components, and top-selling products could be in dwindling supply – all of which decrease cash flow.
If your business stands to endure a slowdown on account of COVID-19, you can still keep operations above water while trade turmoil settles down. Below you’ll find multiple strategies for protecting cash flow, taking an inside-out approach starting with business operations.
Analyze AP/AR
While it’s likely already part of your periodic financial review strategy, now’s the time to take a deep dive into accounting as the first strategy for protecting cash flow. Both accounts receivable (AR) and accounts payable (AP) might be due for a strategy shift. Both can also help bring much-needed cash in-house or keep cash-on-hand for a bit longer than usual.
- AP: Look for subscription-based vendors and consider suspending service on non-essential office supplies and services. Reach out to vendors and leverage your good payment history to negotiate early pay discounts or extended due dates for a defined period of time.
- AR: Extend early pay discounts to customers with timely payment histories. For past due receivables, consider establishing payment plans or discounting invoices to bring that cash on board.
Keep in mind that your customers and vendors might also be experiencing effects from the COVID-19 market disruptions. The strategies above can help keep cash flow steady and prevent the need to reduce headcount. You might also find that you build new goodwill with those on the other end of your AP/AR efforts, as they’re likely looking for cost-saving and improved cash flow measures right now as well.
Explore Bridge Funding
While COVID-19 won’t be around forever, just how long it will be around for remains unknown. That’s why today is an ideal time to explore bridge funding options as a strategy for protecting cash flow.
On-demand funding tools like a business line of credit can help you tap funds as needed and fill in cash flow gaps. You can also explore purchase order financing if you need to switch-up suppliers during lean cash flow times.
More conventional bridge funding solutions like business loans can help fund operations for the long-haul. Many loans offer flexible terms where payment frequency adjusts to meet your cash flow, which could be advantageous in the COVID-19 business environment.
Invite Solutions to Protect Your Cash Flow
Transparency is key during turbulent business times. That’s why it’s critical to bring your entire team up to speed on how it’s anticipated that COVID-19 will impact the business. Once your team is up to speed, invite them to contribute to conversations surrounding protecting cash flow.
For many small and mid-sized businesses, departments/employees can get unintentionally siloed. There’s reduced visibility to how other departments/employees manage day-to-day operations. Management might also have reduced visibility to how each department/employee could help keep operations going during periods of reduced sales or diminished supply.
Create a call for ideas. Encourage employees to cross-collaborate on solutions. Explore ways to dig deeper into your existing customer base versus a focus on new customer acquisition.
A commitment to transparency and collaboration can help surface efforts that could incrementally improve your cash flow. You also might discover a greater sense of team ownership in the company’s day-to-day operations and new initiatives that will boost business well beyond the days of COVID-19.
You now have three strategies for protecting cash flow during the COVID-19 market disruption, all originating from inside your company. The best part about all of these strategies is that they’re not just for times where a health concern is complicating your supply chain. Rather, they’re enduring strategies that all businesses can use year-round to keep operations lean. You could maintain a well-cultivated talent roster and deepen employee participation in the company’s short- and long-term goals.
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