Wringing More Cash from Your Business

Sometime it pays to leave no stone unturned when you are trying to find ways to preserve cash – especially with the stiff challenges facing so many small and mid-sized businesses in the current downturn.
And one of the most overlooked sources of short-term funds for a small business continues to be its network of suppliers and customers. Working with them on payment arrangements can help companies shore up cash flow when they’re facing a crunch.
Robert Chalfin, a Wharton School of Business lecturer, and Lawrence Gelburd, also a Wharton School of Business lecturer as well as a former entrepreneur who advises small companies as a consultant, recently offered the following tips on American Express’s OPEN Forum landscape contractors may not have considered:

Call your suppliers. Get competing bids and negotiate with your existing suppliers. “Consider what you can outsource and conversely bring in-house,” Chalfin says. “A lot of small businesses are now outsourcing payroll, bulk mailings, PR and HR.”
Many small business owners don’t think to go to a supplier and ask if they could extend payments for 30, 60 or 90 days. Sometimes a supplier will give a discount on goods. Contractors may want to offer to guarantee they’ll buy a certain amount in the future. “Suppliers want you stay in business,” Gelburd says. “They may cut you a break.”

For example, he says, his former company went to one of its suppliers and said: “Look, we’re cash-strapped, we need the parts. But when we get the parts, we’ll be able to sell these systems, and we’ll be grateful and we’ll give you more business in the future not just based on price.” The arrangement turned out to be a win-win.

Make it easier for customers to pay. When you bill, Chalfin says, “include an envelope and a copy of the invoice for your customers to return with their payments. Accept credit cards. Offer to set up automatic debits with each customer’s credit card or bank account.”

Borrow rather than finance. “Consider a bank loan for items such as equipment purchases instead of financing them with the company that sells you the equipment,” Chalfin advises. In many cases, you can get a better rate from the bank.

Reduce overnight delivery services whenever possible. E-mail attachments, standard U.S. mail or second day delivery can usually suffice and result in huge savings. Depending on your volume you may also be able to negotiate lower prices with delivery services.

Renegotiate banking and credit card fees. “Talk to your credit card provider,” Chalfin suggests. Negotiate a lower interest rate as well as a discounted fee when customers pay with credit cards. “Negotiate with your bank,” he adds. “You may be able to consolidate accounts, lower interest rates and eliminate fees on loans and accounts.”

Go to your loyal customers. You may be able to go to your customers who buy from you on a regular basis and say: “We’re having a tough quarter. If you buy right now, in exchange for that, we’ll give you a deal. We can extend the warranty or we can guarantee a certain price in the future.”
Larger customers (and suppliers for that matter) are a better bet for negotiating new terms since they’re typically in a healthier cash position. “For them, it’s very low risk, because the amount of money is so small compared to their organization,” he says.
Whatever strategies you opt to try in your business, don’t wait until you’re cash-strapped to seek out a new deal, experts advise.

“If you don’t need that much of an adjustment, they’re going to be better able to work with you,” Gelburd explains. As is the case with a physical illness, he says, “early detection and treatment are the best options.”