Self-Funding: Finding the Cash Within, During COVID

With the dual challenges of greater constituent needs and lower donor contributions due to the pandemic, many nonprofits need creative sources for funding. Here are some thoughts on how to improve your organization’s cash flow.

Re-negotiating Payment Terms with Vendors

We usually don’t think of expenses as a source of funding our mission, but for most nonprofits they can be. This can be an easier, quicker, and less expensive source of funding than bank loans. If you normally pay your bills in 30 days, negotiating 60- or 90-day terms is the same as getting a bank loan. And having a strong credit record and financial position is a big help.

Do you know your Dun and Bradstreet (“D&B”) rating score? If not, reach out to them to review your credit report. Ratings are issued on a scale of 0 to 100 with 0 being the lowest and 100 being the highest. Ratings between 80 and 100 are the best and designated as “Low Risk” of default. Ratings between 50 and 79 are “Moderate Risk” and 0 to 49 are “High Risk.”

Once you receive your D&B report, review the details to be sure they have the facts right. Working for a midsized professional services firm, I found errors on our D&B report. I challenged them, got the report corrected and our rating score improved.

If you have a strong credit rating, use it to negotiate better payment terms with your vendors. A financially strong customer is valuable for business, especially during difficult times like these.

Converting a Bill into a Grant

If your vendors are particularly enthusiastic about your mission, you might consider asking them if they would convert a bill into a donation. They should check with their accountant, but in some cases, they may be able to take a tax deduction.

Lengthening Your Payroll Cycle

Changing your payroll cycle from every week or every two weeks to once a month can be another source of funding. Entry level employees may not be able to delay their pay, but middle management and senior level employees should be able to adjust.

Earlier Client Payments

If your organization’s revenue model includes earning fees for a service, consider asking your clients to pay early. A small change in the timing of their payments can have a significant impact on your cash flow. You could even offer a small discount for early payment.

Timing of Donor Contributions

Many donors make their contributions at the end of the year. This practice dates back to the 1980’s when high interest rates forced donors to hold onto their money for longer periods of time. However, with today’s low interest rates, that benefit no longer exists.

Making the year’s donation early has twin benefits for a nonprofit – the dollars aid the mission and they provide funding when donor contributions are low. If your organization uses a bank credit line to fund seasonal short falls, early contributions save interest that would otherwise be paid on borrowing - providing more funds throughout the year.

Together, these steps can provide funding to keep your nonprofit going until we return to more normal times.

Which tactics have you used to improve your organization’s cash flow during the pandemic?