CONSERVING CASH DURING COVID-19
Here are some quick suggestions from Telergy on how to conserve cash relating to your technology and telecom spend during the economic downturn caused by COVID-19 (ordered from least to most aggressive measures):
1. Extend your vendor payment cycles: Whatever your typical payment cycle is for a particular vendor, stretch out that payment for an additional 30-60 days, especially on delinquent payments that don't accrue interest or late fees under the contract. Even if the contract allows for the assessment of interest or late fees, most vendors will not invoice for these charges. The longer you are looking to extend your payments, the more likely you should communicate the need for this extension with your vendor. You should not feel bad about requesting an extension from your vendor since you are willing to pay 100% of the fees due, albeit late. You can assume plenty of other customers are requesting payment deferral and abatements which are much more burdensome on the vendors.
2. Take advantage of early payment discounts: While this may be a surprising cost reduction tactic because it requires early payment, the advantage of this option is that you are reducing your payment obligation by the early payment discount, thereby conserving cash. If your contract does not provide for an early payment discount, we would recommend contacting your vendors to see if they would be willing to add this option to your contract, either on a temporary or permanent basis. In these times where vendors may be having collection issues, vendors may welcome the idea of getting the money in the door sooner than later (or, maybe, never).
3. Ask your vendor to temporarily defer payments: Vendors may be willing to defer all or some of the fees currently due for a limited period of time (e.g., 3-6 months). While a deferral will help improve near-term cash flow, you are still agreeing to pay your vendor the full amount of fees due. But resist agreeing to a lump sum payment at the end of the deferral period. Instead, try to pay the deferred amount to your vendor in installments over a 6-12-month period.
4. Ask your vendor to temporarily reduce payments: Because of the amount of businesses that are struggling due to COVID-19, some vendors may be willing to charge reduced fees during a limited period of time (e.g., 3-6 months). The difference between this option and the payment deferral option above is that you will not be responsible for paying the difference between the actual amount due and the reduced payment. This position will have a greater likelihood of success if: (i) you can show a reduction in the utilization of the services, whether due to layoffs or remote workforce; or (ii) you are willing to reduce the vendor’s service level during the payment reduction period. Without a doubt, some vendors will use this opportunity as a way to extend your current contract. That may very well make sense but, before extending your contract, be sure that you are only buying what you currently need and there is flexibility within the contract to not only add but also reduce the level of services or user/license count during the contract term.
5. Ask your vendor to temporarily abate payments in full: The most aggressive ask from a vendor is to abate the full amount of payments due for a limited period of time (e.g., 3-6 months). Getting a vendor to agree to this will be challenging unless the vendor is well-funded and your company: (i) will not be utilizing the vendor’s services during the abatement period; (ii) is under extreme financial hardship; or (iii) has other leverage it can exert over the vendor (e.g., sizeable account, referral source, etc.). Again, the vendor may want to add these “lost” months onto the back-end of the contract or have you extend your contract for an annual or multi-year term.
Clearly, the more relief you ask from your vendor, the more you will have to explain the need for the concession and the more you will need to give in return. But nothing should stop you from making these requests, especially if the company’s survival depends upon it.
Telergy LLC is a cost management consulting company helping middle-market companies, including professional service firms, reduce and control their Technology, Telecom and Energy costs. To contact Telergy, please send an email to Mark Friedman, Chief Optimization Officer, at firstname.lastname@example.org or call 312-736-8900x100.