A recent report from Goldman Sachs’ Investment Strategy Group predicts the probability of a recession this year is between 45 – 55%. One way to prepare your business for a recession is to safeguard your cash flow.
To ensure your company is recession ready, you need to secure and protect cash that is coming into your business. Communicate often and clearly with the companies who owe you money. Make sure that they are aware of your billing practices and payment terms. One large customer defaulting on an invoice can be devastating, especially in a recession.
Here are three useful tips to help recession-proof your business’ accounts receivable:
Know Your Cash Flow
During a strong economy and when sales are flowing in, following up on past-due receivables may be a low priority. However it’s best not to wait until the economy is in decline to begin reaching out to delinquent accounts in earnest. Economic downturns are inevitable, but having strict accounts receivable management policies can save your business from substantial losses during a recession. The best way to stay on top of your company’s cash flow is to pay attention to patterns, such as your DSO (Days Sales Outstanding), which is the average number of days it takes you to collect revenue after a sale has been made, as well as how long individual clients typically take to pay their invoices. If payments begin coming in later than usual, it could be a sign of trouble. It is essential to take note and stay on top of your customers’ payment patterns and work to keep them paying as close to terms as possible. A couple of other ways to keep your cash flowing into your business is to try negotiating billing terms with your vendors so that they are favorable to your business’ billing cycle. Also, make sure you have current and accurate credit applications for all customers. This document will have pertinent company information and serves as a tool for your customers so they are made aware of your payment terms and accounts receivable policies.
Maintain Client Relationships
It is very possible that you may lose clients in a recession, which is why it’s crucial to prepare. Prospecting new clients is essential to any business, but it is imperative to focus on your existing client base and maintain the great relationships that are already in place. Keeping in touch with current clients is a no-brainer in any economic climate, not just during a slow economy. When you are in regular contact, you can stay on top of their changing needs and ensure that they remain your client. Maintaining your clients is an excellent shield against recession.
Work With a Commercial Collection Agency
Most likely, at some point, some of your accounts will go unpaid, and you’ll be faced with a decision to try and collect yourself, write off the debt, or turn to an outside collection agency (OCA) for assistance. Using an OCA to collect unpaid debt is a great option that can actually help your business grow. Third-party debt collection agencies have access to a wide variety of credit industry tool and resources to help make the debt recovery process more efficient. Utilizing a collection agency can help your business maintain a positive cash flow and free up internal employees to focus less on chasing past-due accounts and more on activities related to company strategy and growth.
Navigating business during a recession or slow economy can be difficult. Protecting cash flow, while maintaining customer relationships, and partnering with a collection agency are three simple things you can do to help your business survive until the economy’s next upswing.
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