10 Management Techniques to Overcome Negative Cash Flow Challenges in Business

Whenever cash shortages are projected, you have a serious management problem.  This is your business telling you that you are spending more money than your business can afford.

When your cash outflows are consistently higher than your beginning cash balance plus your cash inflows, you must immediately alter your business cash outflows until a suitable cash inflow-to-outflow balance is attained.  Below are ten management options to consider for overcoming a temporary negative cash position listed in order of ease of implementation:

1. Speed up payments through cash deposits and reduced terms on future sales.

1. 1. Require deposits on new or large sales
   2. Change the “terms” under which you do business. Don’t assume that you have to give thirty, sixty, or ninety days for a customer to pay. This cash improvement tip works particularly well when you have an excellent reputation for quality and timely delivery.

2. Collect on past-due A/R (Accounts Receivable) from all of the customers who owe you money.

1. 1. Send out your invoices at the same time you ship product, make a delivery, or perform a service. There is no need to wait until the end of the week or month.
   2. When you send out an invoice, call the client to make sure it’s been received, and that it’s accepted; also take this opportunity to identify any potential payment delay issues.
   3. Three days before the due date, call the customer to remind them of the invoice, and get confirmation that they will mail payment insufficient time for you to receive it by the due date.
   4. When customers miss due dates, freeze their accounts. Don’t let them train you, by repeat performance, to accept late payments; instead, retrain them to pay on time and keep their promises

3. Delay or reduce recurring expenses.

1. 1. Move payroll from every week to every two weeks. This will make your administrative life much easier, and allow your bookkeeper to take a vacation on the off weeks.
   2. Hold back pay one week. If your workweek has a Friday ending, don’t drive your staff crazy by paying the following Monday. Pay the following calendar week.
   3. Don’t treat 1099 employees as employees—but as subcontractors. They are NOT employees, and you need to treat them as you would any other vendor. Pay them once per MONTH, based on the invoice they submit to you. Failure to treat them as regular vendors could mean that you become liable for both the company’s and their share of taxes.  Along with incurring possible fines, you may have to pay interest on the amount you would have paid for an employee.
   4. Renegotiate loans, particularly banknotes, seeking longer terms and lower interest rates.
   5. Refinance equipment loans to lower rates (interest) and terms than your original loan agreement to free up cash in the near term.

4. Delay or reduce payments to existing suppliers and vendors.

1. 1. Keep your word; don’t start delaying things. But, DO call those you owe in advance, and discuss a change in terms before instituting a unilateral delay. It’s the professional and respectful way to do business.
   2. If there is a particular key vendor with whom you have a large balance, negotiate with them to make some, or all, of the balance into a “TERM NOTE,” with specified interest paid over twelve, twenty-four, or even thirty-six months.
   3. Delay payments. As with credit cards, although you’re required to pay in thirty days, you aren’t considered late and won’t get reported to the bureaus until you are another thirty days late. As long as you pay on/before fifty-nine days late, you are not likely to get “dinged” in a credit report.

5. Reduce direct costs (COGS) in future work.

1. 1. Seek price reductions from your supplier on future work coming in. Many times, on big projects or long-running engagements, it’s advantageous to seek multiple vendors’ bids for your work.
   2. Push hard for labor efficiency improvements to reduce your payroll projection obligations. You will know these efficiencies are holding when you see that your lowered payroll expenses begin to match your projections.

6. Change supplier terms to delay paying COGS on future work.

1. 1. When negotiating future purchases, open discussions with competing vendors and reach agreements in advance to have different terms for a new project versus what you have had for existing or past work.
   2. Request to delay Vendor Payments until the week after you are paid. Sometimes, key vendors may request that you agree to a joint check, e., your client issues you a check made out to both you and your vendor for the vendor’s share of supplies.  When agreeing to receive a joint check quite often, a joint “release” will be required.

7. Delay, pay down lesser amounts or borrow greater amounts against capital assets.

1. 1. While it is generally better to pay cash for a needed item to avoid having long-running debt, maintaining CASH reserves is also critical, thus making a partial payment on loans a more prudent move when cash is tight.
   2. Differentiate between Want versus Need by identifying the ROI (Return on Investment) before you ever take on debt financing to fund capital
   3. Know what sales need to occur on a daily, weekly, and monthly basis to justify or prove the validity of the investment in hard numbers.

8. Sell underutilized assets to free up cash.

1. 1. Assets exist to generate sales at a profit. If you have assets that are not realizing this objective, sell them to free up cash.
   2. An asset sold for cash today is always more valuable than an asset that’s depreciating faster than it can produce profits.
   3. An asset that is fully depreciated and is not being used to make money is not an asset; it should be converted into cash, now, no matter how much money you already have in the bank.

9. Increase future sales.

1. 1. Become proactive in searching for new customers.
   2. Develop a new product or service to expand what you are selling to customers.
   3. Develop a new market to reach beyond your existing customers.
   4. Expand geographically into a new market area.
   5. Go back to past customers and ask what can be done to get them to buy from you again.
   6. Ask all of your past and existing customers if they can refer you to a friend, or someone who could refer you on to a friend.

10. Increase capital, or the money invested in the business.

1. 1. Lend personal money to the company through “additional paid-in capital.”
   2. Borrow money from a friend, a bank, or a private investor, as a “long-term liability.”
   3. Take on an investor who invests in the company as a shareholder.

Would you like help building your cash reserves?

You best position your business for success while reducing your stress when you have healthy cash reserves to carry you through the slow sales periods.  You position yourself to build cash reserves by taking decisive action on any combination of these ten most fundamental ways to improve your cash position.

If you want to talk through how best to take action on any one of these ten tips to improve your cash position, click here to schedule an appointment to speak with one of our certified BusinessCPR™ Business Scientists to learn how to improve your cash position.