How do you recession-proof your business in 2023?
Technically, the U.S. is not in a recession. Although there has been plenty of debate about whether we’re going into a recession, when, and how long it could last.
The adverse business effects of a recession vary by company size and industry. As customer spending decreases, every business will feel the financial pinch. However, small and mid-size businesses (SMBs) are more vulnerable during strenuous economic times. A smaller customer base and high overhead costs make it difficult for SMBs to pivot their operations to more profitable areas during a recession.
The likelihood that we will experience a recession during the second half of 2023 is relatively high. The uncertainty of how long it will last makes it challenging to predict how to handle a recession once we’re in it. But there are ways for businesses to proactively lessen the financial impact.
How to Recession-Proof Your Business
1. Manage Cash Flow
An essential part of managing cash flow is being aware of your money’s movements. For example, your business may need to borrow money, reduce its inventory stock, or change the frequency of payroll for employees. When finances need to be tightened, full visibility into your payments allows you to see where your money is going.
Automating your B2B payments gives you a real-time view of invoice and payment status. Additionally, it increases the overall visibility of your entire AP process.
One way to improve cash flow is to ensure your business makes payments on time. It might seem counterintuitive to monitor money disbursements as well as collections. But overdue payments create an additional cost in late fees.
Late fees might be a fraction of your business’s overall costs. However, over time they add up and can significantly impact your business, including suppliers withholding future deliveries.
Cash flow going out is equally important as cash flow coming in, so stay on top of your payments.
2. Be Smart About Debt
Debt is an inevitable part of business. Regardless of the economic state, every company has debt that they need to balance for the business’ success. Recession-proofing by understanding your company’s debt fluctuations will help keep your debt balanced. Furthermore, monitoring your cash flow allows your business to increase DPO and reduce DSO.
Days Payable Outstanding (DPO) is the average time your business takes to pay its bills. Some enterprise companies might make late payments to free up cash flow and keep it available longer. The funds are then used for investments or in other ways that benefit the business. However, a low DPO could also be a sign that the company regularly makes late payments, which compounds late fees and jeopardizes supplier relationships.
A high DPO could also mean a company is taking advantage of extended payment terms that were negotiated with the supplier. Companies aware of their financial flexibility can determine if a higher DPO is to their advantage.
While increasing your company’s DPO for better cash flow is beneficial, reducing its Days Sales Outstanding (DSO) is also good. DSO is the average time it takes your company to collect payments. Keeping this average low means that incoming payments are timely and do not negatively affect the business’s cash flow.
3. Optimize Your AP Process to Recession-Proof Your Business
Your company might be paying suppliers with paper checks and using handwritten ledgers because that’s how you’ve always done it. However, optimizing payments is more cost-efficient than relying on manual processes.
AP automation technology gives back valuable labor hours to your staff for more revenue-generating activities. An invoice-to-pay solution digitizes B2B accounts payable, reducing fraud and increasing workflow efficiencies and security. It removes checks and manual touchpoints and speeds up the entire payment process. Automated payments are also easier to scale when the business grows.
In addition, automating and optimizing payments could pay off during economic hardship. Digital payments with virtual cards can earn your business additional income, something you can’t get with a manual process.
4. Focus on Your Core Competencies and Your Staff
There are pros and cons to taking your business in new directions during a recession. Although, it might be more beneficial to focus on your core competencies and not abandon your customers’ expectations by changing your main offerings. However, innovating how you do business could have long-term recession-proof benefits.
Improving your processes, upgrading your technology, and advancing your team’s skill set are all important to future-proof your business. Investing in your team and preparing them to take on new tech to improve workflow efficiency is vital. Assisting them with upskilling their knowledge by learning new programs will be a tremendous payoff to the business. It is, essentially, doing more with less.
By cutting labor hours, they have time to cross-train and learn new tasks to assist the business in other ways. Automating tedious manual processes improves employee outlook and keeps them more engaged with the business, not just completing tasks. It could also save you from having to increase your staff when money is tight.
5. Improve the Connection with Your Current Suppliers
Focusing on your customers’ needs during a recession is vital. But how you interact with your suppliers is important too. Suppliers are the backbone of your business. It is critical to build positive working relationships with them, regardless of the economic state.
However, when the economy slows down, it affects your suppliers as much as it affects your business. So keep communication open and let them know how much you value working with them.
Address challenges by devising new or better delivery and payment terms that align with both businesses. Late payments put a strain on business relationships with suppliers and vendors. Take advantage of payment automation technology that can make processes easier for you and your suppliers.
Not only do late payments add additional costs, but they also risk late deliveries or having to find new suppliers. Either one could cause disruptions to your business.
Automated payments make the process more efficient for you and your suppliers. A user-friendly online self-service vendor portal makes it easy for suppliers to do business with you. A vendor portal lets suppliers submit invoices, update payables documents, and review invoice status. It reduces friction by answering many supplier questions and preventing calls to your company for payment updates.
During difficult times, suppliers appreciate being paid on time or early. And they may offer your business discounts, which lower your overall costs. Make sure exchanges with your suppliers run smoothly, especially payments.
6. Rise Above Your Competition
Some businesses thrive even when the economy is unsteady. The ability to adopt innovative applications or technologies is a large part of being successful. Digital solutions play a pivotal role in improving the way you do business.
Automation is no longer something that will happen in the future. Instead, it’s something that your company can benefit from today and going forward. Processes that are slow or manual will ultimately hold your company back.
New technologies can seem overwhelming. But if your competition is already taking advantage of it, then your company could be left behind without it. Forward-thinking businesses take note of what is working for their competition. Not to copy or imitate but to analyze how a new approach could work for their business.
Being innovative or creative does not have to be an expensive venture. Improving your workflow and efficiency produces a high return on investment and allows your company to be more flexible.
Your business should take the time during an economic downturn to look ahead to when the economy will improve. Finding better, more creative ways to work could set your company apart from the competition during a time when other companies are looking to cut corners.
7. Market Your Recession-Proof Measures
A significant advantage to recession-proofing your business is that it can also benefit your customers. The steps you’ve taken will bring added value to your clients and can be marketed as some of the benefits of working with you.
When you add technology that automates how you receive a purchase order (PO) from a buyer or send an invoice to a buyer, you can then market that as AR optimization for your clients. Because your new automation technology makes submitting their POs and receiving your invoices easier and more efficient, it clears the way for faster payments. Additionally, you could incentivize your clients to pay early by offering a discount on their invoice. This helps to increase your cash flow and reduce DSO.
Once you promote the value of your recession-proofing as an advantage to your clients, you create even more benefits for your business.
Preparing for a recession could be the best time to improve your processes, add new technologies, and develop new strategies for your business. Additionally, don’t miss the opportunity to connect with your clients and prospects. Your successful recession-proofing methods can be beneficial to your company and your partners.
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Corporate Spending Innovations (CSI) is a global FinTech leader providing innovative payment solutions to world-leading brands across all industries. CSI’s end-to-end payment solution automates and digitizes B2B payments with a safe and highly secure cloud-based payments platform. For a more efficient way to manage payables, including virtual credit card, B2B Payments Network, ACH, and check, book a demo here.
CSI is an Edenred Company, the global leader in payment solutions for the working world.
