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Business Cash Management during Fiscal Turmoil

Provided by SME Solutions Center - Kenya

Manoeuvring in Tough Economic Times

Honesty is key to sustained business existence. Consequently, you need to appropriately alert your vendors, contractors, or creditors that you may not be in a position to settle your bills as expected. You could support your alert by citing the underlying reasons. Should you expect an extended financial crisis, you would do well if you negotiated for more lengthy debt settlement terms. This initiative will preserve the integrity of your cash flow.      

Benefits of Honouring your Fiscal Obligations       

Even amid difficult financial situations, you would strive to settle your fiscal obligations in a timely manner. By doing so, you earn the trust of creditors. This trust grows from the image of creditworthiness that you portray. Your business partners realise that you are prudent in cash management. You could benefit from such an outlook by being able to sail through during difficult financial times.     

If Cash is Tight, in What Order Should You Pay Bills

The constrained nature of your cash reserves cannot allow you to meet all your financial obligations at the same time. You need to go by a certain set of principles so as to ensure business continuity. Appropriate prioritising of bills and prudent debt management are some approaches to take. Relevant considerations include:

  • Settling government debts first
  • Repaying debts so as to secure business continuity
  • Seeking immediate credit card funding
  • Repaying minor creditors first   
  • Keeping creditors informed
  • Using money for its intended purpose
  • Not giving in to creditor pressure

Settle Government Debts First

You need to note that the government treats defaulting debtors rather rashly. As a defaulter, you could have your assets attached. The government can also close down our business. You would thus do well to give first priority to government debts.

Repay Debts that Could Force Business Shutdown

Certain expenditure items, such as inventory, are very crucial to your business. Without them, your business ceases to exist. You thus need to strive to settle debts associated with such items.        

Repay Minor Creditors First

For easy management, you would do well if you try to maintain a small creditor base. You could achieve this objective by repaying minor debtors first. Usually these small bills are central to business operations. For example, electricity and water expenses account for a small proportion of the monthly business cost. These utilities are however very critical.

Seek Instant Credit Card Financing

When push comes to shove, credit cards could offer the needed financing. You could use such facilities to settle accounts payable accounts.  

Do Not Cede to Creditor Pressure

Some creditors may be more aggressive than others in demanding that you settle your debts. Do not be swayed by this pressure. Rather, abide by the rules specified above.

Keep Creditors Informed

You would at no time hide the facts from creditors. Always be in touch with them, consistently and honestly updating them about the situation. 

Use monies for the Intended Purpose

Never fall into the trap of diverting cash from its planned purpose to settle a different debt. This trend could see you incurring extra debt or liability. For instance, if you default on tax payment, you may attract monetary penalties which translate into additional liabilities. 

Even in difficult monetary eras, you need to strive to settle all debts. You may not be in a position to take care of every fiscal obligation amid tough economic times. At such times, your cash flow is hard-pressed. Proper cash management skills facilitate your successful handling of such situations. You need to meticulously balance existing fiscal obligations so as to take care of the duties while at the same time keeping the business operational. To reduce creditor numbers, you could pay off minor vendors first. Sensitive institutions, such as the government, need to be paid first so as to avoid drastic consequences on the business. You could utilise short-term credit facilities so as to prop up dwindling cash reserves. Avoid reallocating cash resources as this could introduce new liabilities.

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