As the coronavirus continues to wreak havoc, small businesses everywhere are feeling the effects. For some, the virus poses a greater threat to their livelihood, than their health. Many businesses have already been forced to close and those still operating are impeded by the restrictions of social distancing, travel bans and border closures.
It stands to reason that, due to a coronavirus-related cash flow problem, companies of all sizes may lapse on payroll. So what should you do if you can’t make payroll? Whatever you do, don’t stress out. Read on for seven options for paying your employees when you think you can’t make payroll—and three options should you miss payroll.
How to increase cash flow when you think you can’t make payroll
1. Ask your vendors for longer payment terms.
Humans are the heart of any business. Explain your situation to your vendors as soon as possible. Be transparent and realistic about payment solutions and pay dates.
2. Offer a discount to new customers who pre-pay for services.
Explain to your customers that pre-paying for services can help ensure the quality of the service in this challenging time. Your customers will appreciate both the positive discussion and financial benefit.
3. Speak to your accountant or bookkeeper.
Your accountant or bookkeeper knows your business’s financials inside and out. Speak to them as soon as possible and ask how you can make up losses or reallocate budgets to get workers paid on time.
4. Consider financing your invoices.
Invoice financing, also known as “invoice factoring,” is one resource in a business owner’s credit portfolio. Essentially, you can use your invoices as collateral for cash. Collect invoices immediately, rather than waiting 30, 60, or 90 days for your customers to pay you. But be prepared to pay a high-interest rate and ask your customers to sign a contract, agreeing to this solution.
5. Enable an overdraw on your bank account.
Your bank may allow you to overdraw on your account. But you may have to contact your bank to opt in, as you may be subject to heavy overdraft fees. This option may not be possible for retail banks that serve smaller customers.
6. Talk to your investors.
If you work with a venture fund, a board of advisors, or a network of angel investors, discuss your situation. These individuals care about the success of your business, and good partners will have your back. They may be able to provide a bridge loan or financing to help you through your crunch. Smart investors know that short-term challenges have the potential to come up.
What to do when there’s no way to avoid missing payroll
1. Talk to your payroll provider.
If you work with an outsourced payroll provider, for instance, communicate that your business is experiencing challenges due to lack of funds. Then speak to your health insurance carriers to guarantee that your employees will keep their coverage. Work with your network of partners to create a move-forward plan.
2. Loans and funding
The Australian Banking Association has announced that Australian banks will defer loan repayments for small businesses affected by COVID-19 for 6 months.
In addition, there are a number of funding initiatives from the government at both federal and state level designed to support cash flow. These range from grants to initiatives such as early access to superannuation.
The primary subsidy designed to assist payroll is the Jobseeker payment. You may be able to claim a fortnightly payment of $1,500 per eligible employee from 30 March 2020, for a maximum period of 6 months.
3. Make up for the lapse in payroll at a later date.
If this is your last resort, speak to your workers as soon as possible. Be transparent about your losses, and understand that you may lose workers as a result. As soon as you can, make up lost pay and offer bonuses and other tangible forms of acknowledgment to thank your employees for their support.
4. Encourage your employees to apply for unemployment and other government programs.
If you’ve researched all the options for retaining your staff, but have to let them go, it’s important you let them know upfront, and advise them of available support. For example, if your employees were still employed on March 1, they may be eligible for the Jobseeker payment.
Act fast and avoid stress—you can do this
Business owners experience cash flow issues and late payroll, even when there’s no global pandemic. Whatever you do, don’t attempt to handle this tough situation alone. Some experts specialise in strategic financial services. Seek out these professionals to help you understand fines, penalties, and other repercussions. Depending on the health of your business, these numbers may be insignificant to your long-term financial trajectory. Act as soon as you realise the extent of your problem. With the right attitude, strategy, and support system, you’ll get through it.
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