Your payment obligations under control

Your company is liquid if you can meet all payment obligations in the short term. But the developments surrounding the coronavirus can affect your business income. You see your income decrease, but the bills, interest, and taxes must still be paid. How? With this overview you can bring your payment obligations under control in 6 steps.

1. Make a liquidity forecast: that is your foundation

Knowing what your liquidity position is per week, is perhaps the most important thing for your peace of mind. How do you do that? Let us keep it simple. You start with today’s bank balance. Below that, list all the income you expect per day, followed by the expenses you plan to make. So: your opening balance + your income – your expenses = your liquidity position in that period. You can also do this for your private situation. If this calculation leads to a positive number, your business is fine. But if the resulting value is in the negative, you need to take action.

Do this for a few weeks or even a few months in advance. In fact, it makes sense to assess your liquidity position for the entire period for which you have an overview of your income (assignments) and expenses. Based on the outcome of this forecast, you decide whether additional financing is necessary. To accommodate entrepreneurs during the current corona crisis, the government has set up several financial support measures.

2. Explore your options

After you have prepared the liquidity forecast, assess your debtors, creditors, any inventories, and your private expenses. In the next steps, you will analyse your obligations and any possible leeway you can create. Think, for example, of deferring repayments to your bank. A bank is also just a creditor.

3. Contact your debtors

Are your debtors still able to pay you within the agreed term? Contact them to learn about their situation. Consider giving a discount if they can pay you sooner. For example, for entrepreneurs with customers they heavily depend on. This of course costs money, but you secure liquid assets for yourself.

Many large companies work with purchase order (PO) numbers. Do not wait until the order ends but arrange a purchase number well before you send your invoice. Do you not receive the PO number on time? Then it might take some time before you get this number, and can send your invoice. So always ask your client how this process works with them.

For longer assignments, you may be able to work with partial invoices. This can be more favourable than a down payment in advance and an invoice at the end of your assignment.

A financing option specifically for debtors is factoring. With this form of debtor financing, a factoring company finances your debtors, also known as advance payment. The factor pays your outstanding invoices, so that you immediately receive the amount of the invoice. Of course, you pay the factor a fee for this.

Financial insight

Each entrepreneur wants a financially healthy company. For that financial insight is handy. Then you can make the correct decisions and keep control over your company. Improve your financial insight with six tips from this video.

Financieel inzicht vergroten: 6 tips

For English subtitels to the video above, click the settings wheel, click ondertiteling and select English.

4. Assess your inventory position

Do you keep inventory? Then make sure that it is workable for a certain order period, but minimise it. Inventory costs money. Agreements with your suppliers about delivery times will help you with this. Telling your customer 'no' every now and then should not be a problem. As long as you inform them when you do deliver. Calculate what this means for your liquidity position. After all, that is the reason to assess your inventory position.

5. Check who you owe money

Now that you have a handle on your debtors and inventory, assess your creditors. Which parties does your company owe money? Divide your creditors into equal groups:

  1. Suppliers of goods and services related to your primary business process, your trade.
  2. Suppliers of goods and services for your business organisation, such as energy suppliers and telephone companies.
  3. Your landlord or your mortgage supplier.
  4. The Tax Administration, municipalities, and other governmental departments.
  5. Staff. Permanent, temporary, flexible, etc.

Check per creditor group whether you can make agreements about payments and whether you can use or set up payment schemes.

Group 1: You may be able to come to a payment arrangement with these creditors, such as drawing up a payment plan. This means that you agree to spread the total amount you owe them over a longer period. For example, instead of €10,000 in one payment, you pay €2,500 in the next 4 months.

Group 2: These kinds of suppliers often offer subscriptions. Assess whether these subscriptions are still of added value for your company. Revise your package and remove any extras you do not really need.

Group 3: With these creditors you may be able to agree to temporarily reduce the fee or pay a month later. There are known cases where tenants and landlords have agreed to do 50/50: lower the rent by half for a few months. Landlords are likely to cooperate, because vacancy does not yield anything at all. Banks are easing their repayment regimes: take advantage of this.

Group 4: The Dutch Tax and Customs Administration, municipalities, and other governmental departments have taken special measures. For example, a corona measure from the Tax Administration is an extension scheme. In addition, the government has expanded the Bbz scheme to meet the most pressing needs. You can request this temporary income support for the self-employed and SMEs from your municipality.

Group 5: Your staff is important for your business, so take good care of them. Motivated staff will go the extra mile in difficult times. But what if you have insufficient work for your staff? Check out which schemes apply to you, such as the Temporary Emergency Bridging Measure for Sustained Employment (NOW). Or consult with your staff and ask whether they are willing to take a temporary pay cut.

6. Private expenses

What you do for your company, you can also do for your private situation. So prepare a private budget for the coming period as well. It will differ per individual which expenses are deemed essential, important, or not necessary. Go through your subscriptions and assess whether you are paying for something that you hardly or do not use.

SME Financing Foundation

For this article, the Netherlands Chamber of Commerce KVK has used the Corona liquidity checklist of the Stichting MKB Financiering (in Dutch). In this checklist, Stichting MKB Financiering provides you with information about the quality mark Approved SME Financier (Keurmerk Erkend MKB Financier) and the Reference Tool Approved SME Financier (Verwijstool Erkend MKB Financier). This will give you insight into which parties are regarded as reliable.