Five Strategies to Preserve and Improve Cashflow

Lone Oak Payroll’s Vice President Kevin Standa offers advice and insight on approaches staffing agencies can take to maintain and improve cashflow.

In times of economic crisis, preserving good cashflow can make the difference between a company weathering the storm and going out of business.

Below are five strategies that staffing agencies can implement to improve cashflow in our current economy and poise themselves for recovery.

1. Funding/Factoring

Leverage your staffing company’s outstanding A/R by working with a payroll funding or invoice factoring company. In times of economic turbulence, it’s important to remain in close contact with your financial partners and stay aware of all options available to you.

For example, most funding companies extend cashflow on invoices to 90 days. But because there are usually incremental interest payments as invoices age out toward the 90-day mark, most funding clients don’t utilize this full 90-day period.

However, these incremental interest payments are often far cheaper for staffing firms than other available options. Are your customers are asking for extended terms in order to keep your people working? It is often advantageous to work with them on those terms and pay the minimal incremental interest rather than risk your customer cancelling orders with your company.

2. Creditworthy Customers

Lone Oak stays committed to maintaining a credit profile for all of our clients’ customers. When taking on additional work or a new customer, ensure that the customer is creditworthy by having the Lone Oak credit department complete an extensive credit check.

Additionally, review your agreements with your customers to determine their contractual obligations with payment terms. Are there fees owed for late payments? Are there any contractual payment terms? Knowing this information is critical as your customers begin approaching your company with proposals to delay payments.

3. Understanding Your Company’s Trends

Businesses are understandably monitoring the daily changes related to the pandemic, but don’t disregard your company’s past trends in a normal economy. Does your business usually slow down between March and June, or does it typically ramp up during these months?

If your company has seasonal business that has recently ended, it may be masked as a dramatic decrease caused by the pandemic. In reality, that decrease is most likely due to a combination of the pandemic and the change in season. Understanding these differences will help you adequately anticipate your business’s cash position, allowing you to maximize your cashflow when unexpected events happen.

4. Reducing, Delaying, or Cancelling Capital Expenditures

A capital expenditure is an amount spent to acquire or significantly improve the capacity or capabilities of a long-term asset, such as equipment or buildings. The asset’s cost (except for the cost of land) will then be allocated to depreciation expense over the useful life of the asset.

Most capital expenditure projects underestimate what the project will actually cost a company. Even if your company has accurately estimated every cost to the penny, you can still dramatically improve cashflow by reducing capital expenditures, which will result in preserved cash or credit.

Some capital expenditures are unavoidable if they are a necessity that allow the business to function or grow. However, when truly analyzing most of these capital expenditures, it is important to be as conservative as possible. By doing so, you can save your company large amounts of money that will improve cashflow.

5. Reducing and Delaying Payments to Vendors

Many companies with more than 20 employees do not keep a central repository of all vendors that are paid in a calendar year. Without writing down the details of how much the vendor payments are, how often they occur, and what value they bring to the business, it’s impossible to know if they are being properly managed.

Consider creating a matrix that lists all vendors with payment schedules and amounts. This matrix will allow your staffing company to identify which vendors can be reduced or removed entirely. You can also re-evaluate your matrix based on your vendor relationship and lean on it for discounts and payment delays.

However, word of caution: do not take a blanket approach with all vendors. Where one vendor may be in a position to allow for 90-day payment terms, other vendors need to be paid immediately. To demand the same treatment from all vendors could jeopardize relationships that are crucial to your company’s success.

Confirm how critical each vendor is to your company with all involved stakeholders before approaching vendors with alternative business offerings.


About Kevin Standa

Kevin joined the Lone Oak Payroll team in 2018 with over 9 years of factoring experience. As a licensed attorney with a strong background in credit and risk management, Kevin has helped to reduce risk and increase efficiency at Lone Oak Payroll. Kevin holds a B.A. from the University of Minnesota, Twin Cities and a J.D. from William Mitchell College of Law. In his free time, he enjoys golf, hockey, and spending time with his wife and two children.