Five tips to prepare your cashflow for a recession

by | Oct 7, 2022 | 0 comments

Talks of recession abound worldwide, and more signs show that an impending economic downturn can be upon us. A comprehensive study by The World Bank warns of a risk of global recession amid simultaneous rate hikes. And at home, ANZ – Roy Morgan Consumer Confidence drops – with just about 12% of those surveyed expecting ‘good times’ for the economy over the next five years.

As we all know, a recession can be challenging for businesses. Cashflow can dry up, making it difficult to stay afloat. As a business owner or financial decision-maker, it’s essential to embrace the challenge by being proactive to prepare your business for a recession. A crucial part of ‘recession-proofing’ is ensuring you have a strong cashflow.

How to prepare your cashflow for a recession

Cash is king – in good times and bad. In tough times, however, staying on top of your cashflow is crucial when challenges can be particularly difficult to overcome. Review your cashflow statement regularly, and prioritise forecasting if you haven’t already. The following tips below will help you drive more cash into your cashflow.

tips to prepare cashflopw for a recession infographic

1. Track your accounts receivables

Keeping track of your accounts receivables (AR) is essential, especially in times of recession when everyone is struggling. During this period, you can expect customers to start paying slowly. You might also experience difficulty in collecting accounts receivable.

Place importance on evaluating clients and their payment habits. You can do this efficiently with accounts receivable (AR)automation that can highlight overdue invoices and any changes in your customer’s payment behaviour. Armed with this knowledge, you can take action to improve your collection process or re-evaluate your credit terms.

2. Encourage good payment habits from customers.

Tracking your AR also means staying on top of collections, and the key is ensuring customers pay on time. You can spend only limited hours in a day chasing payments, and customers don’t particularly like being chased. Helping your customers improve their paying habits is a more sustainable solution, and you can do this by:

  1. Make it easy for clients to pay you.
  1. Make sure your invoices are clear and concise. Include all the relevant information, such as the amount due, the due date, and your contact information.
  2. Provide a checkout experience to your customers by adding ‘Pay Now’ buttons and links to your invoices and email and SMS reminders.
  3. Provide an online payment platform where customers can conveniently pay and manage their invoices 24/7.
  4. Give your customers multiple payment options. Include a variety of methods, such as debit or credit card, direct debits or instalment payments.
  5. Send timely reminders before the due date. A friendly reminder can help jog your customer’s memory and encourage them to take action.
  1. Incentivise good payment habits of customers

Offer discounts for early payments. Or, if a customer sets up direct debit payments, you can offer to extend their credit terms. Rewarding your customers with their payment practices helps develop good paying habits that benefit both parties – you get paid on time, and your customers improve their credit standing.

Five reasons why you should use Integrated Direct Debit

  1. Personalised communications

With the help of technology, you can surface customers that need a more personal touch. Reach out to customers behind on payments and learn what’s preventing them from paying on time. A friendly reminder can go a long way toward getting them back on track.

3. Improve operational efficiencies

Evaluate current operations and determine where you can implement efficiencies to cut down costs in the long run. Businesses can improve their operational efficiencies in several ways, but one essential impacting cashflow is streamlining their AR process. AR automation can help businesses save time and money by reducing manual tasks, increasing accuracy, and improving customer communication. With rising costs, invest wisely in digital technologies to achieve the same or better results with a lower cost structure.

4. Prepare a cash reserve

We’re all taught to save for a rainy day, and it’s no different in running a business. Savings will carry you through tough times, so it’s best to strengthen your cash reserves. The average recommendation is to set aside 6-12 months’ worth of operating expenses. 

5. Cultivate a cash culture in your business

All measures that will prepare your cashflow for a recession are only as good as the people who make it happen. Staying competitive in tough economic times relies on a cash-focused organisation. 

  1. Leadership is transparent about the business’ performance – Management should openly discuss the importance of staying cashflow positive in meetings so that the team can relate their jobs to cashflow performance. Aside from this, management should always encourage activities that strengthen cashflow.

  1. Employees are empowered to make decisions – Use performance metrics to maintain accountability and understand the importance of identifying the decision-makers in the team and how their job impacts cashflow. Providing support and technology can help people make the right decisions.

  1. Everyone is in sync – To achieve a cash culture, everyone involved at all stages of the customer journey must know the objectives of other teams they work with. Visibility and accessibility of information are vital, whether it’s between accounts receivable and sales or operations and accounts payable. But it’s not just about work: connectivity to colleagues and a clearly defined culture are crucial for any team’s success.

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Manage your cashflow effectively with AR Automation Software

Taking these steps can improve your cash flow management and ensure you have enough money to cover your expenses. While recession is not a fun time for your business, sticking with data, knowing your numbers and implementing smart changes will help your business overcome challeneges and come out of it stronger than ever.

AR automation software can help you successfully navigate economic changes, so you can focus on what you do best – running your business. Speak with one of our AR experts today to learn about options for your business.

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