No-one wanted the downturn but it’s here.
What’s the best way of managing your credit with suppliers? Are you worried they may start asking for cash on delivery payments? How do you ask your suppliers for extensions without them worrying about you defaulting?
Everyone is trying to protect their cash. Times are uncertain. Who can blame them?
There is a three-step process for managing your business’s finances in a downturn.
- Understand your own cash position
The first step is to open the books and come up plan for managing your payments. Be conservative – assume your own receivables may be late. If necessary, speak with your accountant or bookkeeper.
- Develop a plan
Talk to your suppliers. Tell them you have worked out a payment schedule. Ideally your suppliers will want to be paid ASAP but ‘fess up: If you’re paying in 45 days rather than 30, make that promise but stick to it. If it’s 90 days instead of 45, so be it but stick to your plan.
Let me explain why.
Imagine you have two suppliers. One pays at randomly, sometimes early, sometimes late. Another pays later than you’d like but in full and like clockwork.
Whom do you trust?
The second, obviously. Why? He’s organized and has a machine. You can set your watch by him.
If you are afraid of the mail. If you’re lying in bed at night adding up the finances in your head that’s a sign you need a plan than works for you as well as:
- Your accountant
- Your bank
- Your customers
- Your creditors