At some point, every business has a cash flow problem because life is unpredictable. We make assumptions about what the market will do, how the economy will act, how those who owe us will pay, how much staffing we’ll need to fulfill the commitments we’ve made, etc. And while, in our own minds, we think everyone ought to act the way we’d like them to act, the reality is that they usually don’t—and that frequently leads to a cash flow problem.
So, what should you do when you need cash fast and you don’t want to turn to a lender to boost your cash flow? Well, take a look at the following ten options and select which ones you can use in your setting to get your cash flow margin healthy again in the next 30-60 days.
I. Incentivize Your People
Since the beginning of time, the old adage, “What gets rewarded, gets done,” has been true. Yes, sales people and sales teams should be closing deals all the time. But when cash is tight and you need something done fast, there are few things that motivate sales people more than more rewards. Urgency still works. You can incentivize all new sales or sales that are beyond X amount or sales from existing clients or sales from add-ons, etc. The sky is the limit. The key questions you need to ask yourself are, “What outcome do we need to achieve to get us out of this jam?” “What do we need to move to get that kind of result?” And then, “What kind of incentive system will get our salespeople motivated enough to deliver that outcome in the time frame we need them to achieve it in?”
II. Work Your A/R Hard
Over the years I’ve worked with a number of attorneys and it still surprises me how much A/R (accounts receivable) they tend to have out there (as someone who usually has zero A/R). Then, as the year comes to a close, the amount of A/R that’s collected is amazing. Why? Because bonuses are usually paid at the end of the year based on fees received (not necessarily billed). So, my question is, “Why wait until the end of the year?” Why not go after A/R with that kind of vigilance all the time—especially when cash flow is tight. In other words, if cash flow is tight, why not dial for dollars? Work it. It’s your money that they’re using to finance their company. So make it a campaign and bring that A/R home now.
III. Offer a Discount for Full-Pay Upfront
In the incentive category, why not incentivize your customers/clients for prompt payment? Note: If you want more customers to take your discount, then it needs to be a significant discount. For example, in the consulting world, a 2% discount won’t move the needle for most buyers, but a 5% or 10% discount will. Your industry may be different, but virtually everyone likes to save money. Moreover, some companies even have policies that state that if a cash discount is offered (i.e. a discount for full pay upfront), they must take it. In other words, if you’re not currently offering a discount for full-pay upfront, you may want to consider testing it.
IV. Ask for a Larger Partial Payment Upfront
This is helpful if you’re in an industry where payments are usually made upon completion of a project. For example, a business could have a policy of 20% upfront, then 30% at the mid-point and 50% upon completion. Regardless of what your standard policy has been, negotiate your next contract with a higher upfront percentage (maybe 40/30/30 or 50/50 or 40/20/40). Even better, If you can, depending on your business, get everything paid upfront. I hate A/R so I collect everything upfront.
V. Test a Payment Plan
If you’re thinking, “Didn’t you just suggest offering a discount for full-pay and now you’re suggesting a payment plan?” the answer is yes. But not all businesses are the same. In the case of product-driven businesses, offering a payment plan can significantly incentivize behavior today. For example, if your product has a larger price tag (and the word, “large” is relative to your market and your prospects) what could be hindering a number of sales is your large all-for-one price tag. Or it could be that people in your market prefer to wait and accumulate cash before purchasing. In either scenario, you’re losing sales today. So, one way to eliminate that barrier and incentivize behavior today is to offer a payment plan. If your payment plan option closes a lot of deals that wouldn’t have been closed, you can ratchet up sales and cash fast.
VI. Invoice Promptly
You may be surprised at the lag time in your business between the time work is completed and the time an invoice is created. So, check it out. One simple and easy way to get more cash faster is to make sure that the time between work being completed and the time that work is invoiced are virtually identical (i.e. the same day). The sooner a bill gets to a client, the sooner they’ll pay (regardless of the terms).
VII. Let Go of C and D Players
Personally, this should happen regardless of your cash flow, but the reality is that cash flow problems usually give leaders cover for letting someone go (especially a long-term beloved colleague whom everyone knows is underperforming). For most of us, payroll is one of our biggest expenses, so cutting out a percentage of the monthly nut we need to crack for payroll is a great strategy for managing cash flow. Even though you want to be generous in your severance, the savings will be huge over the next few months. Then when you’re ready to add more staff, you’ll only hire A players this time and you’ll be in a better position long-term.
VIII. Hold a sale
This seems obvious, but it’s not. Why? Because so many business owners and entrepreneurs are afraid to offer a sale because they don’t want to be caught in discounting the value they provide—nor do they want to succumb to the “Bed, Bath and Beyond” problem where customers often don’t buy unless they have a coupon or there’s a sale on some item they want. However, offering an occasional sale to move something isn’t a bad idea because Marketing 101 says, “Everyone loves a deal!” Since there are som many holidays, you can offer a sale anytime. For example, Ground Hog Day or National Donut Day or you could use the start or end of a season like, a Spring is Here sale or an End of Spring sale etc. for X amount off the regular price … for Y amount of time (days or weeks) to incentivize your prospects and current customers to give you cash now. This is also a great strategy if you’d like to move some old inventory!
IX. Use a High Margin Item as a Bonus Incentive
Continuing our theme of “everyone loves a deal,” bonuses are a great way to incentivize people to act now. And the bigger the bonus for purchasing now, the more sales you’ll get. However, and this is key, the bonus needs to be from a high margin product or service in order for this to work. For example, if you offer a $100 gift card from X company and it costs you $100 to acquire the card, that’s a bad bonus. On the other hand, offering something (whether it’s a product, service, time, free course, etc.) that has a high perceived value AND a low-cost to you, is perfect. Plus, you now have a package to offer as part of your sale.
X. Manage Your A/P Better
It’s worth checking to see how quickly your bookkeeper/accountant/CFO regularly processes invoices. It’s not unusual for many of them to pay an invoice as soon as it comes in. However, if you have a net 30 invoice, there’s no need to pay it today. You may be able to make significant progress on your cash flow, just by managing your A/P (accounts payable) better so that you’re paying bills as close as possible to their due dates. In addition, if you’re in a cash flow crunch there’s nothing wrong with going to some of your key vendors, explaining your situation and asking if they’d be willing to extend your payment terms long enough to help you through your cash flow crunch. Some won’t, but some will. However, if you never ask, you’ll never know.
So, there you have it, ten different ways you can improve your cash flow when you need to do something fast over the next 30 to 90 days. My encouragement to you would be to go back through the list. Select the ideas that might work for you. Brainstorm some ideas to implement those ideas (i.e. what kind of sale or incentive will you offer). And then implement your best ideas fast so that 30-90 days from now your cash flow margins will be significantly better and your stress levels will be significantly lower!
To your accelerated success!