After months of enduring forced business closures and stay at home orders, there appears to be light at the end of the tunnel. While Georgia was one of the states that started the reopening process earlier than most it has been a slow journey to “normal”. Businesses have been able to operate but under limited conditions and only in compliance with state and local government protection guidelines. In fact, the good news kept coming when Governor Kemp issued an Executive Order on June 1, 2020, further relaxing gathering sizes, elimination of patron distancing requirements and guidelines for live performances. These are all good signs for businesses that have been limping along through the pandemic. However, it is essential to take advantage of this time to conduct cash flow planning. Developing a comprehensive plan that not only addresses immediate conditions but extends 12-18 months is necessary in the event of another outbreak. To help clients, prospects, and others, Wilson Lewis has provided a summary of key considerations below.
Cash Flow Planning Tips
- Accounts Receivables – Reducing the time it takes to receive payment is critical to maintaining healthy cash flow. While virtually every business has been impacted by the pandemic it does not mean changes will not have a positive result. Spend time reviewing receivables reports on an ongoing basis to gain a clear understanding of how much and how long invoices have gone unpaid. This will provide a “real-time” assessment of where the business stands and identify opportunities for improvement. Areas to review should include:
- Upfront Deposits – Many businesses only invoice once the project is completed or ordered fulfilled. While this may make things easier for the customer it has a reverse effect on the business. Consider asking customers, especially new ones, for an initial deposit, and then bill the balance upon completion as it will provide access to needed cash.
- Invoice Timing – Many businesses will send invoices on a specific date, usually at the end of every month. Consider submitting invoices immediately upon the delivery of products, supplies, or services. This will help to reduce the time between service delivery and payment.
- Progressive Invoicing – Some businesses may want to consider generating an invoice every two weeks to cover services delivered. While this may be a difficult change for long-standing customers, it should be easy for new ones.
- Past Due Accounts – Do not forget to spend time reviewing past due accounts. Consider calling those customers with an overdue balance to understand their situation and encourage an immediate partial payment. While it is not ideal it will provide the business with important cash.
- Payment Options – Gone are the days when a company issued a paper invoice and a check would be sent as payment. Be sure to make payment as easy as possible for customers by adding electronic and mobile payment options.
- Cut Expenses – While many businesses have already been forced to cut expenses the equation will change as the recovery continues. New decisions about what expenses should be incurred to help fuel recovery should be made. Concurrently, it is often best to postpone planned improvements or large projects unless imperative. Remember, another flare-up of COVID-19 cases could occur resulting in additional closures and disruptions.
- Optimize Inventory – Slow moving inventory consuming space in the warehouse ties up working capital. For this reason, it is important to find ways to sell it even if the income is less than expected. At the same time, use this as an opportunity to review inventory planning and purchasing decisions. Determine if it makes sense to maintain to carry less inventory and only place orders when absolutely needed.
- Negotiate Payables – Extending the amount of time available to pay vendor invoices will help to reduce the strain on working capital. Discuss the possibility of discounts or extended payment terms. While not all will be able to make such concessions, it is likely there are key partners who will. Although sometimes uncomfortable these discussions can lead to a meaningful outcome.
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Cash flow planning can be a challenging task especially when attempting to predict future conditions during a time of intense change. Regardless, it is a critical exercise for Atlanta businesses to undertake as it will ensure you are ready for a variety of situations. If you have questions about the information outlined above or need assistance with cash flow planning, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.