Remember the good old days when credit lines flowed like water and all you needed to do was call the bank to get set up with short-term financing when you needed it? Those days are long gone and small business owners are being forced to find other ways to free up much-needed capital.
Here are five creative strategies to help keep the cash flowing in your small business:
1. Join a barter network
Ever heard of a barter network? Here’s how it works. Let’s say Company A wants to open a booth at an exhibition but it needs cash to do so. Company A has broken-down farm equipment that Company B is interested in fixing and selling. After selling the equipment he can use the cash as bartering dollars to pay for another network member’s (Company C) display booth. Bartering is an excellent means to conserve cash and it can really pay off, quite literally.
2. Check your recurring charges
Recurring charges augment a company’s expenses automatically and endlessly. It pays to take a good look at your bills, particularly those that recur automatically. Most companies can cut down on a lot of expenses without even feeling any pain. Just two examples: Replacing an expensive monthly bottled-water service with a far less expensive filtration system and using a PR firm on a per-project basis rather than a set retainer.
3. How about billing twice a month?
Many companies bill clients on a 30-day cycle. But if you have to pay your employees twice a month, this can cause cash-flow difficulties. Why not invoice clients twice a month? One company did so and reported that more than 90% of its clients didn’t mind the change because it still allowed them 30 days to pay. The holdouts can be billed once a month.
4. Prevent bad debt by sending pre-lien notices
An effective way to prevent bad debt is to send pre-lien notifications to each customer on all jobs exceeding a certain sum (say $5,000). The notices should state that the company is protecting its right to place a lien on the merchandise that was purchased if the bill isn’t paid within the pre-set time. One large company reports that after sending out the notice, bad debt shrunk by $350,000 within a year and a half.
5. Think positive – drive your profits
If you are worrying that your bank might call your existing loans, look for ways to drive your profits. One company reports that it found ways to purchase inventory more efficiently, changed pricing strategy, and used incentives to raise the team’s productivity. As a result the company drove profits from 1% to 7%, and the bank expanded its credit line despite the crunch.