Credit & Risk Management

5 Important Tips To Avoid A Cash Flow Crisis

Effective cash flow management is key to business success. It requires proactive planning and management to ensure you have the cash you need to run your business. Here are five tips to avoid a cash flow crisis.

1) Forecast and Monitor Cash Flow

The first step in anticipating and preventing cash shortages is knowing where you stand. Forecast and monitor cash flow on a regular basis. This will give you the insight you need to anticipate potential problems before they occur, and proactively identify a range of solutions. If you wait until the crisis occurs, you will likely have fewer attractive options to address the situation.

2) Monitor Your Customer Portfolio

Solid receivables and on-time payments from customers are key to healthy cash flow. Review the creditworthiness of existing customers on a regular basis so you can identify warning signals that indicate the likelihood of delinquent payments. If you become aware that a customer is having financial problems, you can proactively work together to address the situation before it becomes a problem. Business credit reports are a helpful tool because they consolidate all the critical information needed to assess credit risk in one place. They contain pertinent information from numerous sources, including public records and filings, as well as trade references. Business credit reports also contain scores that indicate a business’s creditworthiness and predict its payment behavior.

In addition to monitoring a company by pulling its business credit report on a regular schedule, you can sign up for alert monitoring services that are offered by business credit report companies. These services send you alerts if there are changes in a company’s business credit report, such as credit score changes, new credit tradelines, and bankruptcy filings. It is also important to effectively manage customers who consistently pay late.

3) Review Your Business Model

Review your financial statements on a regular basis so you have a better understanding of the cost structure and profitability of your business, as well as its cash generation potential. This will enable you identify opportunities to improve margins by eliminating unnecessary costs or adjusting prices. You should also periodically evaluate your inventory management policies to optimize the balance between production planning, customer service, and cash flow.

4) Develop New Business Opportunities

It is important to keep developing new sources of business to keep your sales growth and cash flow strong. Make sure your customer database is clean and up to date so you can deploy your marketing and sales resources efficiently. Knowing who your best customers are allows you to more effectively identify promising prospects and to develop impactful marketing campaigns. Knowing which customers have potential for growth allows you to target them for upsell and cross sell opportunities.

If you don’t have the in-house expertise or resources to cleanse and enhance your customer data, consider hiring a company with expertise in this field. In addition, correcting errors and updating your data, these companies can often make your database more robust by appending new elements including occupations, job titles and gender for individuals, and sales volume, industry classifications and credit scores for businesses. Some vendors can also use your customer data to build predictive models that can help you better understand the profitability, attrition risk profile and growth potential of existing customers.

5) Make Sure You Have Borrowing Options

Despite your best efforts, your company may still experience a cash flow crisis, so it is critical to have borrowing options at your disposal. Apply for a line of credit when times are good, so that it is available for use if you need it. You should also keep your financial statements up to date and ensure that your business credit report is current and accurate as potential lenders will review these documents if you apply for credit. Your business credit report changes over time to reflect new information, such as credit score changes, updated trade payment history, new public record filings, and address updates. Review it regularly and consider signing-up for a self-monitoring service offered by one of the business credit report companies. These services send you alerts if there are changes to your report and enable you to report or dispute any discrepancies or inaccuracies that you find 24/7.

Credit.net offers streamlined, intuitive and easy to understand business credit reports on millions of public and private companies in North America, and around the world. Contact us to discuss how we can help you achieve your business goals.

Eric Kider
Risk Management General Manager

Eric Kider currently is the Senior Vice President/General Manager, Data & Credit Solutions. He is a highly motivated senior executive bringing more than 30 years of dedicated experience and a proven track record of driving significant revenue growth and margin improvement within, both, the financial and information services industries. Eric possesses expertise in all aspects of business management, including the development and oversight of sales, operations, product management, technology, and customer service. He holds a BS degree in Economics and Government from Skidmore College and took graduate courses at Sheffield Hallam University (Sheffield, United Kingdom).