Even the most financially mature organizations feel unprepared right now. We are facing challenges most of us never imagined possible, and the uncertainty of the entire situation, especially the timing, can feel overwhelming as a leader.
Implementing a thoughtful cash management strategy can make a significant difference right now, both for the financial health and leadership of your business. We recommend thinking about cash management within three different areas:
Cash Management Strategies
Strategy 1: Cash Inflow
Now is the time to focus on your cash inflow and making sure that you are taking every effort to bring cash into your organization in a timely and (fairly) predictable manner. This often equates to ensuring that your invoicing process is optimized and timely. Some small businesses may want to consider invoicing on a more frequent basis, possibly weekly, to allow for more frequent cash inflows. (Of course, you should communicate with your customers before transitioning to a different invoicing cadence.)
Strategy 2: Cash Outflow
There are a few possibilities to consider for cash outflow relating to vendor payments.
- AP Automation: Automating accounts payable through electronic payment decreases your processing fees and saves your team administrative time. It’s also a more secure manner for payment because it minimizes paper and human interaction. Further, because it’s faster, it allows you to maximize the amount of time that your cash is within your account before release.
- Credit Extension from Key Vendors: Trusted relationships can pay off when asking for credit extensions. Working with your vendors to allow for more time before payment is due allows you to more tightly manage your cash outflow. This conversation is most successful when you provide guideposts around the request – communicate that you commit to returning to the original agreement at a specific time in the future, if possible.
- Payment Prioritization: If necessary, prioritize the invoices that you are receiving and when you will pay them with the highest priority placed on services critical for operations.
Strategy 3: Work with Your Banker
This is, by far, the most talked-about option right now with the signing of the CARES Act on March 27th, and the Paycheck Protection Program applications going live on Friday, April 3rd.
Through the Paycheck Protection Program, small businesses and not-for-profits with fewer than 500 employees are eligible for a loan to cover payroll expenses. The terms of the loan are attractive and, maybe most important, some or all of the loan may be forgiven, based on your spending rate for the eight weeks following the distribution of the loan dollars.
Demand for this program will be great, and, right now, we are unsure of the amount of time required to process and fund the loan. If this would be beneficial for your Indianapolis small business, reach out to our Financial Services & Systems team to evaluate and prepare for application this week.
The Paycheck Protection Program (PPP) isn’t the only opportunity to work with your bank for cash management of your business. Other ways that banks can be helpful in managing your cash flow include:
- Consideration of relief or extension on existing debt
- Increasing an existing line of credit or opening a new one
Your bank discussions will be most productive if you come prepared with supporting documentation. We recommend having a thorough understanding of your cash position over the next 90 days (your 13-week position) so that you and your banker can talk specifically about your needs.
Having a complete and thorough understanding of your cash, as well as a plan to manage it closely and effectively is vital during uncertain economic times.