Right now, the biggest challenge your business will face is a reduction in cash flow. The idiom ‘cash flow is the lifeblood of your business’ has never been more relevant.
Businesses who quickly assess and reprioritise their finances will be in a stronger position. This guide gives business owners practical advice on how to maximise cash flow.
Taking stock of where you are
Understanding your position
We are in unprecedented times with no indication of when trading will return to normal. Anything less than three months worth of available cash needs immediate attention.
- How much cash do you have in your bank account(s)?
- How many invoices are outstanding? What’s the value?
- How many invoices are you yet to raise for placements? What’s the value?
- What does your pipeline look like? What’s the expected invoice value?
Understanding your cash in and out
- Review all your outgoings; rent, salaries, bank loans, fees and charges, advertising spend and subscriptions.
- Contact your customers to ensure you continue to have a business relationship during this period and obtain confirmation of when you can expect to receive payment.
- Review financial commitments such as hire purchase/leasing/loan payments. Speak with the financier, they may be able to offer you a payment holiday.
- Where possible, make purchases on a credit card and maximise repayment days.
- Approach suppliers and landlords to see if you can negotiate longer payment terms or potentially payment holidays until trading activities increase.
- Review Coronavirus Business Interruption Loan Scheme (CBILS) options (CBILS is a new scheme, announced by The Chancellor at Budget 2020, that can provide facilities of up to £5m for smaller businesses across the UK who are experiencing lost or deferred revenues, leading to disruptions to their cashflow.)
- Review financing options
Reviewing your processes
- What are your current debtor days? How can you make this more efficient?
- How fast are you receiving credit decisions?
- How will your processes look if you have to scale back / cancel a subscription that’s a vital part of the placement chain?
- How are you optimising your operation to market and sell your service? Can you outsource elements of back-office processes that are distracting you?
Maximising cash flow
Turning invoices into cash should be an immediate priority for all recruitment businesses.
In a cash flow crunch, it’s reasonable to assume that both parties (buyer and seller) will be pursuing strategies to delay payments and recover cash quicker, resulting in a stalemate.
By working with a financier to ‘buy’ your invoices – you’re effectively removing these conversations altogether. Saving time, energy and strengthening relationships.
If you place temporary workers, contractors or interim workers, selling the invoices generated from timesheets to a financier means you receive your gross margin from the invoice up-front.
Getting cash in quickly has a positive impact on your ability to trade and meet all your fixed and variable costs.
And, as the financier is buying the debt, responsibility for credit control and managing payment sits with them.
If the invoice financier has back-office capabilities baked in to their offering, you save valuable time on admin work. Being efficient will enable your business to focus on managing relationships, model trading scenarios and communicate with clarity.
Review your funding
Make sure you’re releasing the maximum from invoices. If you’re receiving 90% or less, consider how not having the extra 10+% (minus fee) impacts your business. (the image below illustrates how your business could be missing out on cash that could be used immediately)
How much cash could you release into your business?
If you’re self-funding placements – strongly consider both your financial, operational and insurance position.
- How valuable is the cash in hand now?
- How much strain is administration adding to your business operation during this period?
- What happens if your client cannot pay? Are you covered?
- Check your payments. Are they overdue? Is your client increasing time to pay?
Review all your permanent placements
- What are the highest value invoices outstanding?
- Can you agree new payment terms?
- How much are you yet to invoice, what’s the value?
- Will a trading spike with one client mean concentration restrictions kick in? What would this mean?
- Are there any trading restrictions in your agreement?
- Are reserves withheld?
- What additional fees and charges are eating into the amount of cash you receive / access?
Credit & Bad Debt
- Can you make credit decisions quickly? How fast is your present time to receive a decision back from your financier?
- How does bad debt affect you? What’s your % cover? Have you reviewed the T&Cs?
- How fast can you switch from your provider? It’s likely in the current climate that businesses will be overwhelmingly supportive of each other.
- Check the reality of your cash flow for the near term
- Consider all costs
- Speak to customers
- Explore funding options
- Plan for future
At this moment in time, it’s never been more necessary to be working with the right partners and suppliers. Give the team a call today on 0207 112 4949 for a free consultation.
We’ll help you figure out if Sonovate is the right fit. If we’re not, we know plenty of other businesses who can advise you.