No-one wanted the downturn but it’s here.
There are three key things every business can do improve their odds when times are uncertain.
First, manage your supply chain risk.
What is the financial health of your customers? You can ask them for a letter or credit from their bank. Letter of credit not only provides a source of ultimate payment, it can also be used to secure inventory financing while your goods are en route.
- Having a letter of credit for yourself can also give your suppliers confidence that yours is a well run operation.
Second, plan with your accounting team.
Do ‘war games’ with your accountant. Come up with plans in case your sales volume, margins or receivables fall through. Write these contingency plans down. If necessary, share your these your finance partners.
Third, improve speed of sales to cash
Turning receivables into cash are often taken for granted. When times are good no-one really thinks about it. However, the longer it takes to turn a receivable into cash, the more vulnerable you are. Review your processes to speed up the conversion to cash.
Finally, look at everything from a cash perspective
Normally operations and finance are thought of as separate. During a downturn, finances can become really important. Review your operations, every process. See how all steps in operations can be improved to better your cash position.
Of course, there are many other steps that can be taken such as managing variable costs like contract labour, extending your payable schedules, delaying capital expenses, hiring freezes but first things first – manage your cash flow.