For many business owners, it’s a nightmare scenario that can easily become a reality. Some big invoices aren’t paid on time. Maybe a deal that you expected to close falls through at the last minute. You have some unexpected cash outlays. The next thing you know, you’re facing a serious cash crunch.
In fact, it could be so serious that you may not have enough cash on hand to make your next payroll run. Any business owner who has been in this situation knows how much pressure it can bring. Missing payroll is usually the first sign of serious trouble at a business. You’ll lose your employees’ trust, so much so that many of them may look for employment elsewhere.
If you’re in this situation, your goal should be to make payroll at all costs. The actions you take may not be pretty, but they’ll keep you alive to fight another day. Emergency cash flow solutions are usually better than the alternative, which could be losing your employees and your business.
Here are a few emergency tactics you can take today to resolve your cash flow situation and make your payroll:
Discount your receivables.
The unfortunate thing about cash flow issues is that a cash crunch doesn’t always signal that a business is failing. In fact, you may be doing really well. You could have a mountain of receivables in your pipeline. If those receivables aren’t paid, though, and you’re running tight on cash, you could quickly go from a strong position to a precarious one.
You may be able to resolve the problem quickly by getting on the phone with your customers. Do you have any invoices that are getting especially old? Call the client and ask them what you could do to get them to wire the money immediately. Could you discount it 10 percent? 25 percent? 50 percent?
Again, it may not be fun to take a discount, but that’s better than losing half your staff to a walk-out.
Also, do you have loyal customers who place standing orders every month? If so, contact them and ask them if they’d be willing to place their order early for a discount. If they truly value your product or service, they probably will.
Too many business owners won’t take this step because they’re embarrassed to admit to their customers that they’re in this situation. Don’t let pride get the best of you. Your clients have probably been in similar situations themselves and, if anything, they’ll respect the fact that you’re taking action to save your business.
Have a flash sale.
Do you have inventory sitting on your shelves? Materials that you need to move? Then that’s where you should look for the solution to your problem.
Get all of your contacts together and send out a mass email to all of your past and present customers and prospects. Tell them that for a limited time you are offering certain products or services at a deep discount, but they have to take advantage and pay immediately to get the discount.
“Deep” is the keyword in that sentence. The discount has to be so big and compelling that it drives the customer to take action. Have your sales and customer service teams follow-up by phone to make sure everyone sees the message and is aware of the sale.
The temporary discount may sting, but you’ll likely come up with some quick cash that you wouldn’t otherwise have received. Plus, you’ll clear out some of that excess inventory.
Engage your employees about the situation.
Many business owners make a huge mistake when facing a payroll crunch. The mistake is that they don’t tell anyone about the issue until the very last minute. That undermines employee trust and it prevents your employees from making their own plans to deal with the situation.
Most of all, though, refusing to communicate costs you the opportunity to come up with creative solutions with your team. If you’re open and honest about the situation, you may find that some of your team members will help you brainstorm ideas.
For example, you could talk to some of your senior managers about the issue. They likely have more at stake with the company than some of your lower-level employees. Maybe the senior managers would be willing to forego a paycheck so everyone else can get paid.
Or you may find in talking to your managers that you don’t need to be at full-staff every day. Maybe you could implement a furlough system where each employee takes a couple of days off unpaid each month.
The only way to work out these solutions is by projecting your cash flow far in advance and having open and honest dialogue with your team, especially your managers.
Use a factoring service.
Even with calls to your customers, a flash sale, and some creative scheduling with your employees, you still may find that you are short. In that case, it may be a good idea to work with an outside partner to solve the issue.
One such partner could be a factoring company. A factoring service will advance you a large portion of your outstanding invoices, sometimes as much as 90 percent. And the good news is that they’ll do it quickly and possibly even within a couple of days. That will get cash in your hand so you can make payroll.
The factor then collects on the invoices directly from your customers. When they collect, you receive the remaining balance, minus a small fee to cover the services that the factoring company provided.
Invoice factoring not only puts cash in your hands, but it also takes collection responsibilities off your plate. You can focus on more important tasks, like earning more business and streamlining your operations so you don’t get in this situation again.
A payroll problem might be scary, but it doesn’t have to be a disaster. With a little planning and preemptive action, you can make it through the situation. Be creative and communicate with those around you. If you do that, you’ll find a solution.