The Importance of Proactive Communication & Talking to Your Vendors In This Crisis

communication is key right now

As COVID-19 spreads across the globe, bringing with it shelter-in-place orders, shuttered businesses, and widespread economic uncertainty, many businesses are operating in crisis mode.

Nobody knows whether we’ll be back to business as usual by summer, or if the effects will ripple through the economy for a year or more. But there are steps you can take to keep your business solvent in the coming weeks and months.

  • Step 1: The first step to weathering the storm is to take control of your cash-flow situation. And do it now. After all, if you don’t have enough cash to maintain your operations, your business fails.
  • Step 2: Ask yourself, but what happens after that? Not only are businesses unsure of their day-to-day operations, but it’s also unclear how their supply chains and clients are handling the disruption.
  • Step 3: Find out if will you still be able to receive the supplies you need for your operations. Are your customers cutting back on your product or service as they create their crisis plans?

The only way to gain a better understanding is through proactive communication. Reach out to your vendors and customers to understand the issues they’re facing. Knowing the effects on your partners will help you get ahead of problems, understand the impact on your market and supply chain, and position your business to alleviate some of their challenges.

Here we have created a tangible guide on what to ask your vendors and customers, and what steps you should take to preserve your cash flow and secure your business.

Read More: 10 Tips To Help Improve Your Company’s Cash Flow

Review Vendors and Contracts

The first thing to do is to review your vendors and take action to preserve your cash flow. Make a list of each vendor you work with and determine which partners are essential — and which are not. Next, review all of your contracts and agreements to find the payment terms for your major vendors, suppliers, and other expenses.

Once you know which vendors are essential and the payment terms of your contracts, it’s time to make a plan. If you’re amid a cash flow crunch, use the list you created to determine how you’ll manage your accounts payable.

From there, prioritize payments to your major suppliers and vendors, because these people will keep your business open. For non-essential vendors, slow payments to prevent valuable cash from going out the door. If you’re struggling to pay vendors, the next step is to negotiate payment terms. Talk to your key vendors and explain your situation. If you’ve been a long-term partner, you might find that they’ll offer you flexibility. If your vendors are struggling with their cash flow crisis, they may be willing to take partial payments or negotiate another arrangement to bring cash in the door.

When it comes to expenses such as office leases and facilities, reach out to your building’s owner or property manager to proactively offer a payment plan that aligns with your adjusted cash flow. By communicating potential issues in advance, your landlord will be more confident that they will continue to receive payments — and preserve their cash flow. If you need help structuring a payment plan or working with property managers, a real estate broker can assist.

Learn How COVID-19 Impacts Your Vendors

As you talk to your vendors and make plans to preserve your cash flow, find out how the virus is impacting their businesses. To minimize disruption, assess whether your vendors can continue to provide service, at what level, and for how long. If you’re not entirely confident that your vendors can continue to supply critical goods or services, it’s time to create a contingency plan.

If your business is in a strong position to endure the economic downturn, look for opportunities to increase your revenue after the crisis. A profitable acquisition for your company could be subcontractors or other partners who are struggling to make it through.

In addition to understanding how Coronavirus is impacting your vendors, be proactive about the effects your business is facing. Tell them how your company is handling the virus, how you’re affected, and any other relevant information. Just as your vendors impact your cash flow, your business impacts their cash flow. Being proactive and upfront with your status creates goodwill, but more importantly, gives your partners information to forecast their revenue and devise contingency plans.

Read More: Why You Need Financial Scenario Planning for What Ifs

Know Your Market: Talk to Clients and Customers

Your vendors are not your only priority. Reviewing your clients and customers is critical to find potential risks to your cash flow. Evaluate your key accounts and determine who may be likely to cancel or delay their orders or service contracts. For those who may be at risk of cancelation, reach out to those clients about delaying or pausing service. While your cash flow will still be impacted in the short-term, delaying contracts makes it more likely your business will recover in the long-term.

Additionally, consider restructuring the payment terms of your contracts or working with your clients to create other short-term solutions. When it comes to maximizing your emergency cash flow, maintaining some level of accounts receivable is still preferable to none at all. When business returns to normal, it will be easier to resume payment from clients who pause or modify their payments than it would be to repeat the sales process.

Learn How COVID-19 Impacts Your Clients

After you’ve analyzed which clients are the most affected, learn how the virus is affecting the rest of your customers. In particular, determine which clients may struggle to make on-time payments. Proactively work with them to create a plan that benefits both of you. Negotiate payment plans that encourage payment instead of default — even if that means a short-term delay.

For those clients who are in a strong position to navigate the crisis, take advantage of their position to bolster your cash flow. Send invoices earlier than you typically do to encourage early payment. Consider offering discounts to those who pay in advance, so your business can benefit from the infusion of cash.

Don’t forget to update your clients on how Coronavirus impacts your business. Provide transparency on what changes will affect their service, communicate flexibility with payment terms, and speak to other ways your business can help them navigate through this period. This information will give your clients peace of mind while building long-term goodwill that will last long after this pandemic.

Minimize Disruption With Proactive Communication

The sudden, drastic disruption to daily life caused by the COVID-19 pandemic is unlike anything most of us have ever seen. By proactively communicating with vendors and customers, you’ll have a clearer picture of how their business is affected, and in turn, how your business will be affected. Having a full understanding of the effects will give you the information you need to create a strategic plan, maintain positive cash flow, and weather the storm.

If you need help analyzing the risk to your business, improving your cash flow, or disaster planning, contact Signature Analytics for a free consultation. Our expert team of finance and accounting professionals has experience with a wide variety of industries and business sizes, providing us the expertise to guide your business through these challenging times.