For many business owners, it’s a nightmare scenario that can quickly become a reality. Some big invoices aren’t paid on time. Maybe a deal 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 severe cash crunch.
It could be so severe that you may not have enough cash to make your next payroll run. Any business owner 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 may seek employment elsewhere.
If you’re in this situation, your goal should be to make payroll at all costs. Your actions 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 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. You may be doing well. You could have a mountain of receivables in your pipeline. If those receivables aren’t paid and you’re running tight on cash, you could quickly go from a solid position to a precarious one.
You may 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 by 10 percent? 25 percent? 50 percent?
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Again, taking a discount may not be fun, 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 if they’d be willing to put 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; if anything, they’ll respect 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 your contacts together and send a mass email to all your past and present customers and prospects. Tell them you are offering certain products or services at a deep discount for a limited time, 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 significant and compelling that it drives the customer to take action. Have your sales and customer service teams follow up by phone to ensure everyone sees the message and knows the sale.
The temporary discount may sting, but you’ll likely come up with some quick cash 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 prevents your employees from making plans to deal with the situation.
Most of all, though, refusing to communicate costs you the opportunity to develop 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. The senior managers may 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 entire 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 may still be short. In that case, working with an outside partner to solve the issue may be a good idea.
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 within a few 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 factoring company’s services.
Invoice factoring not only puts cash in your hands but also takes collection responsibilities off your plate. You can focus on more critical 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 mustn’t be a disaster. You can make it through the situation with a little planning and preemptive action. Be creative and communicate with those around you. If you do that, you’ll find a solution.
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