Cash flow management: You know how to do it, but can you do it in a crisis?

We previously outlined 15 steps to cash flow best practice in our crib sheet. To build on this, we asked some finance front-liners what they’re really saying to their SME clients.

It turns out that the principles and practices of good cash flow management don’t change in a crisis, but ongoing lockdown brings in a new level of urgency and a few additional factors to consider. We asked around in our community of experienced SME advisers and accountants and found them in agreement on these key eight points:

1. Focus on the next three months: A 12-month rolling cash flow is the usual time frame for forecasting, but right now all your energy should be going into the next 12 weeks. The priority is to stop the cash bleed, maximise cash in, minimise cash out. (Here’s our cost-conservation check list and our government support round-up).
2. Hibernation is the wrong word: Even if you’re not operating at all, you might be busier than ever – managing cash flow. Keep speaking to suppliers and customers and revisit your spreadsheets every day, see what’s come in, see what’s changed. In normal times, cash flow management is a fairly linear process; now it’ll be much more fragmented.
3. Negotiation is the new normal: Cash flow problems are so widespread that we’re in new territory with payment terms. Call your customers and suppliers and start negotiating. If you can’t pay an invoice, offer to pay part of it or pay it in instalments. You’ll be surprised at how willing people are to be flexible and understanding. It’s not in anyone’s interests for you to go bust so don’t be afraid to ask for goodwill.
4. Be realistic: Even if you have to pay a little bit of interest to defer payments, it might be worth considering. Your main aim is to keep cash in the business for the next few months or prioritise the funds you have so you can afford to pay your employees at the end of the furlough period.
5. Be chasing: Don’t wait 15 or 30 days until your invoices are due – follow them with a phone call the day you send them. Check the invoice has been received and that there are no errors in it. You always want to be taking away excuses for late payment and if there’s going to be a coronavirus-related problem, you’ll know about it sooner rather than later. This means you can kick off frank conversations now and find a way forward that suits you both.
6. Be pragmatic: If you’re in a position to accept part-payments on your own invoices, do so, especially if you have large invoices out there. If your customers survive, you’ll get the rest of the money eventually and you’ll have earned their loyalty. If they end up going under, you’ll have at least received some money from them.
7. Be logical: If you can afford to pay only one supplier, have a process for deciding which one gets paid. Prioritise creditors according to their size or their importance to your business. There might even be situations where you need to prioritise payables for a supplier that is on the brink of failure in order to prevent a critical failure of your supply chain.
8. Be SME supportive: If you have small business customers and you’re in a position to offer friendly terms, try to do. You’re supporting your sector and making a strong comeback more likely for your ecosystem.

Visit our dedicated coronavirus business support page for a host of helpful resources.