CREDIT MANAGEMENT
Cash Flow : Moving On From The Pandemic
By Wasilwa Miriongi
As we are all adjusting to an ever-changing new normal , including the pandemic related economic challenges , there are many other business adjustments that we need to be prepared for .
Many companies should not even be trading . Those that want to continue trading , the timing to start the restructuring and re-engineering process for a company at this level , is yesterday . It takes time , planning and effort , and the clock is already ticking . Reaching profitability starts with having a plan to get there , with an identifiable time frame that can justify the existence of the company .
In Kenya , it is estimated that as many as 75 percent of small and medium enterprises ( SME ’ s ) have been affected directly in one way or another such that one third may have closed down .
As we know the chain reaction from the repercussions of Covid-19 on any part of the business systems of their customers could have caused them to experience cash flow strains or insufficient liquidity , delayed payments or default on payments , have their customers delay or default on payments to them and have their businesses shut down .
The deterioration in the payment behavior of their customers can be part of the pandemic ' s collateral damage , and it could have had a crippling ripple effect on business ' s cash flow . The challenge therefore is how to minimize such risk , so as to optimize debtors and limit bad debt losses as much as possible . Unless you are a company that is extremely cash rich or can turn on the credit line spigot with your bank just by clearing your throat , most companies from time to time will have a crimp in their cash flow . For some companies , this is a short and temporary situation , but for others it can start to become a more serious problem .
Here-under are some important things to consider doing in order to shore up your cash flow and maintain a positive relationship with your suppliers and customers .
• Within your daily and monthly operations , identify all costs that are deemed to be excessive , redundant or unnecessary . Once these costs have been identified , you ' ll have a starting point from which to either reduce or eliminate them .
• Review all of your trade payables and evaluate which suppliers would be accommodating in extending payment terms to you . You may have certain suppliers that you have been doing business with for years that you have always paid like clockwork . Since your payment history with them is sterling , now is the time to ask them to help you out by requesting a reasonable extension of terms . Most likely they will be accommodating since they will continue to want your business . You may also want to tell certain suppliers that once things have improved , you ’ ll be happy to bring payments back in line with the original terms .
• For other suppliers , it may be necessary to set up payment schedules and if you can , let the payments be sent regularly through an automatic withdrawal schedule from your bank to theirs . Without question , an honest and proactive approach will continue to keep the supply line alive and your credibility intact .
• Be sure that all your customer invoices are being sent to them on time . Waiting for supplier invoices to come through and other related documentation in order to substantiate your own billings could result in delays of several weeks . Once the job is done or the product is supplied , send the invoice out that same day , especially via email which will shorten the payment cycle by several days .
• Contact your best customers ( those that have been paying you 30-45 days consistently over the past several years ) and give them the option of a discount if they will pay their invoices within 10 days . Offering a new payment option , which can save them a little money , will certainly be an incentive and should bump up your cash flow .
• Know every single receivable that is past due and make every effort to get it collected . Even the very small ones will add up . If there are customers who are considerably past due , let them know ( where feasible ) that you will have your salesman pick up the cheque , or that you will arrange a courier company pickup of their payment by the end of the day . In addition , and again where possible , start offering to take payments by easier payment options such as online remittance or use of Paybill numbers .
Although every company from time to time will have a crimp in their cash flow , and the above points will certainly help in the recovery , the real key is to try and have ongoing vigilance towards all the factors that can contribute to the cash flow problem in the first place . As with change in any industry , there are those who survive and those who do not .
Wasilwa Miriongi is a Certified Credit Professional currently working as the Managing Director , Del Creder Credit Management Limited . You can engage him on this or related matters via email at : WMiriongi @ gmail . com .
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