Reduce Financial Distress by Fixing the 4 Ps of Low Cash Flow

A business with more money going out than coming in has low cash flow. Over time, low cash flow can lead to corporate financial distress, but the problem can often be remedied by fixing one or more of these four P’s of low cash flow.

Fixing these 4 Ps of Low Cash Flow Can Help Companies in Financial Distress

Whether you are working with a business turnaround consultant or you’re going it alone, reducing business expenses and maximizing cash flow is likely to be your first priority if your company is experiencing financial distress. These four P’s of low cash flow represent nearly every area where your business could make adjustments that could reduce financial distress and put your business back on the road to growth.

Reduce Financial Distress by Fixing the 4 Ps of Low Cash Flow

1. People

When it comes to business expenses, people-related expenses like payroll, benefits, taxes, uniforms and other costs directly related to the raw number of individuals who work for the company may be the biggest expense (or second biggest after facility costs).

One of the first items of business for most turnaround consultants is to ask business leaders to see where there are redundancies or under-utilized positions, so that cuts can be made. The procedures, policies and tasks that the people who work in your business must complete may also represent areas where your business can cut costs and become more efficient.

In the case of short term low cash flow, many companies leverage receivables financing for payroll factoring loans to fund a payroll cycle while waiting for cash flow to stabilize. Feel free to ask us about our payroll financing tools or request a free quote using the form below the article content.

2. Positioning

Pricing and marketing concerns directly impact an organization’s ability to be profitable in several ways. Here are some questions to ask about pricing and marketing that can help determine whether adjustments can be made to reduce or eliminate financial distress:

• What is the cost of goods or services sold?
• Are prices charged high enough to result in profits?
• Are prices too high compared to competitors, resulting in inadequate sales?
• Is the target market being reached with current marketing and advertising?
• Is the market being targeted the right one?
• Is the target market large enough to sustain a profitable venture?
• Would inventory contraction – eliminating poor selling goods or services – focus market attention on the most profitable goods or services?
• Does inventory need to be expanded to attract more members of the target market or produce more revenue per customer visit?

3. Place

In this instance, the word “place” refers to the physical structures and supplies needed to do business. Facility, inventory, and capital equipment and furnishing costs can be astronomical. Companies in financial distress will often need to significantly reduce place-related costs, such as:

• Renegotiating lease and rental agreements
• Working out a manageable repayment schedule with investors or lenders
• Negotiating vendor discounts or opting for less-expensive alternatives
• Reducing utility use (and costs) or cancelling utilities that are not necessary to the business (cable TV for the employee break room, Wi-Fi, etc.)
• Eliminating purchases of supplies that are not absolutely necessary

4. Payments

Payments refers to how quickly revenues (from any source) come in to a business. Some company revenues may be fixed, such as fees from subscriptions, royalties or commissions. For other revenue sources, such as customer invoices, adjustments can be made to speed up cash flow and stabilize it relative to business expenses:

• Changing customer terms to require faster invoice payment

Changing customer payment terms or increasing collections activities in an effort to get customers to pay faster could speed up cash flow; however, it could also have adverse effects on customer relationships including customer defections and bad customer reviews. In some cases, changing payment terms is not even an option. For instance, government contracts are often on fixed payment schedules. Likewise, big customers often set the terms for payment from their vendors, not the other way around.

• Offering early pay discounts – get paid more quickly (usually about 14 days)

Offering early-pay discounts to customers can also result in some customers paying more quickly if the incentive to do so outweighs the benefits of not paying early. Some customers will ignore early pay discounts if they feel it will negatively impact their own business cash flow, so merely extending early pay discounts does not ensure that you will effectively speed up cash flow in your own business.

• Invoice factoring – get paid on customer invoices the same day they are generated

Invoice factoring is a more dependable and effective method of speeding up cash flow. Instead of hoping that customers will respond to collection activities or take you up on profit-depleting early pay discounts, you can factor invoices. Factoring allows you to receive payment on a customer invoice on the same day the invoice is generated – giving you access to working capital faster and for a fee likely to be significantly less than the amount of revenue you would lose if customers take advantage of early pay discounts.

Invoice factoring has many benefits for companies whether they are in financial distress or simply want to expedite cash flow to grow their business more quickly. We offer programs that can be tailored to your organization’s financial needs with features such as:

• Low factoring rates starting at 1%
• Fast same / next day funding on factored invoices
• High factoring advance rates – up to 98%
• No long term contracts – use as a short term solution or a long term cash flow management tool
• No factoring minimums – factor only when in the best interest of your business
• Program transparency – no hidden fees or surprises
• No application or due diligence fees
• Free customer credit checks
• Opportunities to earn money through our new client referral program
• Industry-specific benefits like savings on fuel, oil and tires, financial management using Fleet Fuel Cards and TruckersB2B industry discount programs for transportation factoring clients

You can find out more about how invoice factoring can speed up your company’s cash flow and reduce financial distress at no cost and no risk. Simply complete the form below to request a free, no-obligation quote for factoring services or any of our working capital financing tools.