A cash flow crisis can strike at any time. If your company is experiencing high sales, you can still run into issues with cash. Even outages in systems, such as Visa’s network going down in Europe for a short period of time, can cause a short-term cash flow crisis.
We’re going to discuss how to overcome these cash issues to help your business stay afloat.
What Impact Does a Crisis Have on The Treasury?
Cash crises have a direct impact on a business’s finances, but with the right approach, you can mitigate many of these cash issues. Executives and lead accountants will be under a lot of pressure at this time because stakeholders will look to you for answers.
A few questions that you’ll be asked are:
- What damage is being done by the lack of liquidity?
- What can we do to shore up liquidity?
- What will happen if cash flow doesn’t improve?
Treasury will need to find ways to improve its cash flow and liquidity quickly or risk late payments, issues with creditors and having to reduce the workforce.
What Should You Do in a Cash Crisis?
Responding to a cash crisis will require a multi-point strategy that includes:
Cash Flow Monitoring
Immediately, you’ll need to begin monitoring your cash flow and working on ways to analyze your inflows and outflows. It’s crucial to start reviewing your cash flow regularly, and tools can help you run reports daily or weekly, which is a necessity in a cash crunch.
Optimize Accounts Receivable
Where are you experiencing payment bottlenecks? Reach out to customers who are late with payments and try to come to an agreement to receive payment faster. Even consider partial payments to help improve your liquidity.
You can also offer digital payments to be paid faster and should put invoice reminders in place.
Optimize Accounts Payable
What are your options for the payments that you need to make? Can you defer payments, and which ones must be prioritized? Can you keep lower inventory amounts to keep costs down and more money in the bank?
You’ll want to take this time to review your workforce and expenses to find ways to cut back on overhead, and these expense reductions may be difficult to handle. You may need to stop using services that you’ve relied on for years or reduce your workforce. You can instead opt for Automated Accounts Payable software which is more accurate, productive and has lesser chances of errors
You can also try renegotiating contracts with vendors to allow you more time to pay your debts.
How Should You Prepare to Handle the Crisis?
Handling cash in a crisis is easier when you do all of the preparation beforehand. Right now, when you’re not in a liquidity crunch, you should do the following:
- Review all of your processes relating to liquidity management and analysis
- Analyze your cash reporting and forecasting
Your team must have an easy, updated review of your accounts receivable and payable, and understand where cash delays begin. Understanding liquidity bottlenecks and correcting them will help keep cash flowing into the business.
You may need to take out a line of credit or work on new contracts to ensure that your accounts receivable is being paid rapidly so that you have the liquidity to continue operations.
Proper cash flow management will allow your business to maintain the cash it needs to pay overhead and debts without taking out loans or other high-interest options.
Should You Use Software When a Crisis Strikes?
Yes. You need to learn how to create cash flow in crisis, and you won’t have the liquidity to spend the additional resources on an accounting team to run:
- Cash flow statements
- Projections and forecasts
- Cash flow analysis
Using the right software can help you improve your cash flow crisis management by providing daily reports that can be used to identify liquidity concerns.
Real-time cash flow analysis and monitoring allow your accounting team to remain agile and adapt to issues with liquidity with precision. You’ll also make smarter decisions, such as taking out a loan or finding where spending can be cut back to reduce expenditures and improve total cash flow.
In Conclusion
Managing cash flow during a period of crisis can mean the difference between your business being a success or failure. Using the advice above, you’ll be well on your way to coming out of a crisis as a stronger business.
