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Eight things you can do when your company runs out of cash

You spent a lot of time and energy planning and organizing but you forgot to make a plan for one thing. What happens if things go wrong?

What can you do when you only have some days to pay your suppliers and your bank and you have no cash?

That’s a tough scenario, right? It might make you feel better to read that a lot of companies go through that. The good news is that there are a lot of things you can do about it!

  • The first thing to do is to cut any unnecessary expenses. For example, you shouldn’t be paying any bonus until you get back on your feet. In addition, you should consider cutting down your discretionary expenses (things like stationery expenses, advertising expenses, entertainments costs etc.)
  • You might have unused overdraft or you may be able to arrange for an overdraft facility.
  • In addition, you should try to postpone any payment you can. For example, you can start by contacting your suppliers (starting from the ones you have the best relationship with) and ask them to re-negotiate the credit terms or extent the payment period. This is a tricky one and most suppliers will not be happy to hear that.
  • You also have the option to sell part of your equipment and lease it back using a capital lease. Capital leases is a common practice ever for big companies since you can minimize your capital expenditure but still be able to “buy” the machinery you need. You can either dispose your assets and then lease brand new equipment or find a company that will be willing to help you with a leaseback.
  • Another option is to sell your accounts receivable to a factor. Accounts receivable factoring is a contract where you sell your accounts receivable to a specialized company. You get some cash now for invoices that will be paid in the future. There is of course a fee that you will need to pay and the fee depends on the credit worthiness of your customers.
  • Apart from controlling your cash outflows, you should try to increase your cash inflows. Do you have any invoices that should have been already paid but your customers “forgot” to pay them? It’s probably a good time to contact them! In addition, try to collect any bad debt you have. There are bad debt collection agencies that you can use for that!
  • Try to incentivize your customers to pay on or in time. You can create prompt payment discounts and motivate your customers to use them.
  • As part of your marketing strategy, you should have created a list of your customers. You can try to create a promotional offer for a limited time and contact them. Just bear in mind that by doing that, you might not actually increase your sales but just discount future sales.

These are of course some of the options that you have and remember that your company is not the first company that goes through such difficulties. Try to analyze what your options are, make a plan and take action. The most important thing to do is to understand what are the reasons that brought your company here.

Filed in: Accounting, Entrepreneurship Tags: , ,

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