How to Prevent a Cash Flow Crisis

When it comes to cash flow for your staffing business, an ounce of prevention is definitely worth a pound of cure. Taking a preventative approach to cash flow management is not only easier than you think, but will also help your staffing firm maintain constant cash flow and working capital.

Have a cash flow management strategy. Cash flow management strategies are the steps you take to forecast cash flow, monitor cash flow on a regular basis and solve for any issues that arise. Cash flow forecasting, invoicing immediately and using short payment terms where possible, monitoring expenditures and invoice factoring are all effective cash flow management strategies for staffing firms.

Other top cash flow best practices include following up on outstanding invoices and taking advantage of any discounts that your suppliers give you to pay early. Automating your invoicing and processing is another great idea that will help you stay organized and improve your cash flow easily and often.

Practice cash flow forecasting regularly. Cash flow forecasting is not only vital to identifying potential shortfalls and understanding their causes, but also to enabling you to proactively find solutions. When you’ve incorporated cash flow forecasting into your routine, you’ll be able to see your cash flow needs and any potential shortcomings in advance. This foresight enables you to then use cash flow strategies like asking for a deposit, requesting longer payment terms from your suppliers or using invoice funding to get invoices paid in advance of net terms.

To calculate your cash flow forecast, you can use Excel or try more powerful, automated cash flow forecasting tools to save time and run different types of projections.

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Closely monitor current cash flow. While forecasting helps you prepare for the future, you also need to understand your cash flow today. You can monitor cash flow by reviewing a cash flow statement every month (or ideally sooner) so you can quickly handle a shortfall that wasn’t forecasted or identify whether you can take on a large project at a glance. A cash flow statement can alert you to potential gaps in cash flow before they become a crisis or give you time to prepare for a growth project. This enables you to get access to working capital quickly through invoice funding or other alternative funding so you can quickly resolve the issue and get back to doing what you do best: finding talent for your clients.

How to Deal with a Cash Flow Crisis

Sometimes, despite your best efforts and intentions, it isn’t always possible to manage cash flow by forecasting, monitoring and collecting enough revenue to cover expenses. When cash flow is negative in the short term, solutions like cost cutting and invoice funding can help. Over the longer term, invoice funding creates a steady stream of operational cash flow to ensure contract-based employees are being paid on behalf of your clients on time. Getting invoices paid immediately also gives you enough cash to take on large projects that can grow your staffing business.

No matter the cash flow management model you decide to use, the best one for your business is the one you’re actively involved in. Even if you have an accountant or bookkeeper to manage your financial records, make sure you are regularly seeing a cash flow forecast and current statements so you can anticipate potential cash flow issues and put your management strategies to work.

Steven Uster

Steven Uster
Steven Uster is the CEO and co-founder of FundThrough.

Steven Uster

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