Declining donations, dues, grants or sponsorship funds may lead to not-for-profit budget deficits. But you can reduce the risk of cash flow crunches by making relatively minor changes to your cash management practices. But what is cash flow?
The sooner your organization accumulates cash, the better your cash flow. For example, consider moving your fundraising calendar ahead. By sending an appeal in July rather than November, your nonprofit may receive significant cash in late summer. Then mail reminders in November to those who haven’t yet given, and ask summer givers to make a year-end gift, too. By doing this, you’re more likely to see contributions in December as well.
Try to collect installment donations earlier, too. Instead of waiting for each payment of a four-quarter gift, contact those donors who are clearly predisposed to giving. Asking for the remaining donation in advance may speed up the process.
Get billing right
Billing errors, whether in the amounts invoiced or the recipient’s mailing address, can delay payments and hamper cash flow. Take steps to get the details right on every invoice. Request updated address or credit card information in every encounter with a payer and review reports of declined credit cards so that recurring payments can be made without delay.
Also make your invoices clear, clean and easy to understand. Use text descriptions rather than internal billing codes. The recipient should have no questions about what the charges are for or how they’re computed. Confused payers may just set their bills aside.
And consider issuing bills earlier. If a charge is incurred at the beginning of the month, but you wait until the end of the month to bill — and then allow a 30-day grace period for payment — you’re likely waiting at least two months to collect.
Managing cash outflow goes hand in hand with accelerating cash inflow. If you’re facing severe deficits, you may need to decelerate your bill payment or negotiate extended payment plans with vendors.
When your nonprofit is in a pinch, you must prioritize disbursements. But be careful: Although employee compensation can account for as much as 70% of some nonprofits’ budgets, such disbursements generally can’t be delayed.
Even in relatively flush economic times, nonprofits need to take a proactive approach to managing cash flow. Contact us for more cash management tips.