In a perfect world, your business revenue is always following a steadily upward trend. But sometimes, you may see sales drop – and drop significantly – which can throw your ability to maintain positive cash flow in turmoil.
Sometimes a dip in sales is due to seasonality, and there may be natural peaks and troughs in revenue. Other times, a major global event like the COVID-19 outbreak could cause an unexpected shift in your ability to do business and keep profits rolling in.
Whether a slowdown in sales is expected or not, it's always helpful to have a contingency plan in place to navigate what happens next, particularly if you fall behind on paying your bills.
Talk to Your Vendors
You rely on your vendors to supply you with the products and services your business needs to operate. In turn, they rely on you for timely payment.
If you've fallen behind on paying vendor invoices, it's important to reach out to them as soon as you're able to resolve the situation. First, establish how much is owed to them. Then, discuss what options may be available for getting caught up.
For example, if you're several months behind, it may not be realistic to pay your total balance in full if or when sales are just beginning to pick up again. You may need to work out a payment plan instead.
When negotiating payment plan terms, consider what you can afford to pay based on current cash flow and how much you expect sales to climb in the coming months. At the same time, it may be worth renegotiating your payment terms for new invoices going forward.
For instance, you may pay on a net-30 basis right now. But if you could use a little more time to pay, you may ask your vendors if you could switch to net-45 instead. That can give you a little more breathing room to get caught up on your bills.
Consider a Business Line of Credit With Your Bank
A business line of credit can provide you with flexible funding to help you get caught up on bills following a significant drop in sales. Rather than borrowing a lump sum of money, you have a credit line you can draw against as needed to pay your operating expenses or make investments in your business.
A business line of credit may be favorable to a traditional small business loan or small business credit card. With a small business loan, you're borrowing a lump sum, which means you have to pay interest on the full amount. A business line of credit only requires you to pay interest on the amount of your credit limit you're using.
That's similar to a business credit card, but credit cards may offer less spending power. You may be able to qualify for a higher limit using a business line of credit, which is helpful if you have multiple large business expenses you're trying to get caught up on.
Look Into Emergency Funding Relief
If a drop-off in sales was the result of an emergency, such as a global pandemic or a natural disaster, the Small Business Administration may be able to help.
The SBA offers several programs that are designed to provide financial relief to businesses who have found revenues falling due to unforeseen circumstances.
You could also look into emergency fund and financial relief at the state level. Special loans or grant programs may be available through your state's Secretary of State office. It may take more time to apply and get funded compared to a business line of credit, but it's worth exploring how federal and state government programs could help with resolving past due bills.
Reevaluate Your Business Model
Getting caught up on bills following a decline in sales may also mean taking a look at your business products and services to see if there's any room to innovate.
For example, you may be able to introduce a new product or service to attract old customers back to your business or garner the interest of new ones. Or, you may consider changing the way you deliver your products and services, so there's less potential for a sales disruption if something unexpected comes along that shakes up your industry or the economy as a whole. Doing so could help give you a sales boost that can generate cash flow to get caught on bills. Of course, you would have to counter that against any costs you might incur to expand your reach, such as delivery fees or product development expenses.
Another possibility is rethinking how you accept and process payments for your business. For instance, during COVID-19 a number of businesses moved to using apps and contactless payment methods to help customers make purchases safely. You may consider talking to your business banker about payment options you might be able to adopt that could make doing business easier for you and your customers. And, if you're able to get paid faster, that can help with getting those past due bills paid up.
Finally, take time to review your typical expenditures to see if there's any way you can make your business leaner. The less you have to pay out in operating expenses and overhead, the less you have to worry about getting caught up on later if your business experiences another dip in revenue.
