Wednesday, April 11, 2012

4 Steps to Keep Creditors on Your Side During a Cashflow Crisis

Step 1: Assess Where You Are Now
If the pressure is on there is a high probability you have lost sight of the extent of your problem. When you are constantly bombarded with phone calls and letters it's too easy to ignore the situation in the hope it will go away. But this is not the time to bury your head in the sand.

Part of the key to successful cashflow management is knowing exactly where you stand. Forewarned is forearmed.
So your first task is to write down precisely how much you owe and to whom. If your bookkeeping system is set up around stacking invoices in the corner of your office, or leaving them languishing in your email in-box, access them out and list them one by one with names, amounts and dates due.
Acknowledging and accepting the extent of the problem is an essential first step.
Step Two: Prioritise Your Payments
Having written a list of payments due the next step is to prioritise them. In prioritising the list you are aiming to classify them into three categories:
1. Business critical payments which have to be made under any circumstances. These are payments which would put your business at risk if not processed
2. Creditors who would be content with a part payment
3. Non-critical creditors who could wait and not cause you major disruption if not paid
Step Three: Communicate, Communicate, Communicate
In times of a cash-crunch it's too easy to ignore the situation you're in but in not communicating you will only compound the problem. Now you have your list the next step is to get in touch and inform each of them as to what is happening and to communicate your message or request.
Put yourself in your creditor's shoes; what would you think if you were expecting payments by a certain date and had planned your cashflow position accordingly but no payment was received? Not impressed I guess. So why should it be any different if you are the one delaying payment?
By communicating your intentions you will be preserving and in some instances potentially strengthening relationships with your suppliers.
Step Four: Check Your Cash Position Daily
Now you know where you stand you can move ahead more confidently. From now on it's all about monitoring the cash position in your bank account on a daily basis. You are checking to see who has paid you, what cheques have cleared and, referring to your payment schedule, which creditors you can pay as per the agreements you have made.

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