At its first meeting in 2020, on March 3rd the Reserve Bank of Australia (RBA) cut interest rates to a record low of 0.5 per cent. This marks the fourth time that Australia’s central bank has cut interest rates in the past year; the coronovirus threat to the economy is the latest impetus.
The interest rate cuts are an attempt to stimulate economic growth in the face of economic risks brought on by an unprecedented summer of bushfires, a real estate downturn and now global pandemic fears. The premise: low financing costs stimulate business and consumer borrowing and buying.
The grim outlook surely has businesses shaking. Australia’s education and travel sectors are already counting losses from the coronavirus spread overseas. On March 3rd, RBA governor Philip Lowe warned about the impending knock-on effect domestically: “The uncertainty that it [the coronovirus outbreak overseas] is creating is also likely to affect domestic spending. As a result, GDP growth in the March quarter is likely to be noticeably weaker than earlier expected.”
Will an economic downturn last forever?
Of course not.
Economic activity cycles around a long-term growth trend. Ups then downs, boom then bust, with an upward trajectory over time.
Business owners who have been around for decades know how to ride the roller coaster. In fact, they’ve turned the troughs into opportunities to steady the ship for the next storm on the horizon.
They know that after the storm comes the rainbow.
10 strategies to protect your business in an economic downturn
Here are 10 actionable strategies that focus on customers, reputation and credit risk management:
1. Recover your cash
2. Pay your suppliers on time
3. Offer credit card payments
4. Don’t rely on one big customer
5. Diversify suppliers
6. Monitor your debtors’ credit activity
7. Sell more to current customers
8. Credit check new customers
9. Focus on operational efficiency
10. Take advantage of government stimulus packages
1. Recover your cash
Now is the time to usher in those outstanding invoices. It’s cash you’ve already earned, so it should be the easy win for a boost to your cash reserves.
Businesses using ezyCollect prove that one of the most effective precursors to collecting invoices in bulk is to send a collections email to customers. Every outstanding debtor receives an email reminding them of the agreed payment terms and all overdue amounts.
2. Pay your suppliers on time
You don’t want your business credit status to deteriorate during an economic downturn. Your own suppliers will likely be monitoring the market for bad payers and will adjust their trade credit agreements to mitigate credit risks. (This is a good practice for your business, too. See point 6).
Should you use the opportunity of low interest rates to borrow money, lending institutions will access your business credit report to determine your credit worthiness.
3. Offer credit card payments
Regardless of the state of the economy, your business should always be improving its service offer to customers and that extends to your payment services.
Credit card payments offer your customers convenience and flexibility. Your customers can continue to buy from you and pay on time, using their credit card service to hang on to their cash for longer.
Accept online credit card payments
4. Don’t rely on one big customer
The old adage ‘Don’t put all your eggs in one basket’ rings true here. Relying on one major source of revenue is risky during times of economic downturn. If that business falters, so do you.
Diversify your customers. If you’re a manufacturer, review your product distribution strategy. If you’re a service provider, can you reinvigorate your service bundle so that you appeal to a wider range of clients?
5. Diversify suppliers
Where is the weak link in your supply chain? The irony is, the weakest link might be your biggest supplier.
Even behemoth Apple is not immune. Following the coronavirus outbreak in China, Apple announced a temporary worldwide shortage of iPhones due to factory closures in China.
6. Monitor your debtors’ credit activity
With a credit monitoring service, you are alerted in real-time when your debtor registers a significant credit event in the wider marketplace. This means that you’ll be among the first to know if they register a default payment or there are court actions lodged against them.
Businesses that don’t use a credit monitoring service have been blindsided when their customers quietly slip into insolvency. With credit alerts coming in daily, your business can act immediately to recover debts before the administrators move in.
7. Sell more to current customers
Anecdotally, we know that it’s easier to upsell to current customers than it is to attract new customers. Some statistics show that existing customers are up to six times more likely to buy than a new prospect.
During an economic downturn when others go quiet, be the company that lets your customers know that you are as excited about your offers as ever.
- Cross-sell e.g. a memory card to go with a digital camera; a purse to match the handbag.
- Upsell e.g. the bulk buy, the premium plan.
- Lock-in-for-longer e.g. move monthly subscribers to an annual subscription for a genuine discount.
- New offers e.g. make sure your existing customers know what’s new and invite them to test or trial.
8. Credit check new customers
While it’s tempting to crowd more customers onto the ledger during times of economic uncertainty, more customers can mean more risk if you offer trade credit.
Cashed-up customers buoyed by stimulus packages or low financing costs may be hiding a history of late or default payments. Order a credit check report before you issue your trade credit terms. You’ll have more assurity that new customers are assets not liabilities.
9. Focus on operational efficiency
Wasted effort, wasted time, and wasted materials are unnecessary costs to carry in the digital age. The right enterprise technology can help businesses identify downtimes and high input costs. Automation technology can help businesses achieve more in less time.
ezyCollect’s automated communications, for example, allow businesses to send more payment reminders, collect more money and close the books faster — no extra headcount needed. In times of economic downturn, do more with less.
10. Take advantage of government stimulus packages
When the economy dips, governments may provide some form of cash injection or cash relief to small-to-medium businesses. SMBs are the engine room of the economy; it’s in everyone’s interests that business as usual powers on.
Following the 2019 summer of devastating bushfires, the Queensland government announced a six-month payroll tax relief measure for impacted businesses. Deferring tax liabilities will allow businesses getting back on their feet to focus on paying staff wages and suppliers.
The Australian Government is expected to release a stimulus package following the Reserve Bank of Australia’s latest interest rate cut.
The bottom line
Your strategies to protect your business during an economic downturn can be permanent improvements. They’re activities that will prepare your business long-term to ride the waves as they come. The best protection now is the best protection always: strong relationships with your customers, an excellent reputation and an uncompromising focus on risk management.
Don’t be left unprotected.
“Only when the tide goes out do you discover who has been swimming naked.”
Warren Buffet
Get started with ezyCollect and protect your business from late payments and credit risks
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