In a business downturn, the first rule is that Cash is King! The second rule is, refer to rule #1. Preserving or enhancing and leveraging your company’s cash position is important for a business to have the flexibility needed to withstand and respond to the downturn.
Here are a few items that you can focus on today to drive improvements:
Make sure that your teams are invoicing promptly and prioritize collecting what you’re owed, entertaining ‘haircuts’ or staged payments where necessary. When speaking with your clients you may receive requests for extended payment terms. We have heard of companies requesting up to 120-day payment terms for work already invoiced. Review each client’s financial situation and decide whether to extend – or shorten – credit terms. Offering extended payment terms to a good and financially worthy customer can engender good will that will last after the economy rebounds. In making your decision, you’ll want to weigh the client’s current creditworthiness based upon updated financial information, your history with the account, and the anticipated profitability of the services being offered. By the same token, a small discount for prompt payment may be a win/win.
Conversely, request payment terms with all of your company’s trade vendors. The international and domestic transportation providers customarily offer credit to good customers. Your company’s history of paying immediately will put you in a strong position for being granted credit. Most trucking companies and draymen offer at least 14-day terms. Even on imports, many ocean carriers and agents offer 21- to 30-day terms. If you elect to pay a vendor immediately upon service being rendered, request a prompt payment discount of 1-2% of the invoice value. Or, ask for preferential service.
Importers should enroll in the government’s Periodic Monthly Statement Processing Program (PMS). This program provides up to 45 days of interest-free credit for duties and taxes while also streamlining accounting and duty processing workload.
Given the volatile business environment, implementing credit insurance or a similar enhancement may make sense. There are providers who focus on and understand the needs of international business. Please reach out to us if you would like a referral to credit insurers with whom we have worked successfully.
Separately, if you have a line of credit, you may wish to consider a pre-emptive draw of some or all of the unused capacity.
For any high-risk situations such as an actual or threatened client bankruptcy your financial advisor or attorney will be able to walk you through the options.
As always, we are here to assist you in growing your business. If there is anything we can do to help drive improvements, please don’t hesitate to reach out to us.
Best regards,
Lauren Pittelli
Founder & Principal