Whether it’s the seasonal ebb of low cash flow, or a more pressing problem that is weighing on your business, money crunches are tough for everyone involved. Your debts may be too high to correct, or your margins too low. Perhaps it’s your current sales volume. More than a need to simply chase invoices and offer incentives to entice prompt payments, these times of negative cash flow are more complicated and more detrimental to the health of your company. And cash flow management is as important as liquidity.
So what can you do to help stay afloat during these dips? Here are some tips that will help you get back on top.
Ask for a bank overdraft. If you understand before you start looking that an overdraft can be an expensive way to solve your cash flow problems, a bank overdraft can be a really great first step. They are often flexible, allowing for open borrowing and repayment terms, and allow you to put a stopper in a negative flow, and to gain back some control before implementing other saving tips. Be sure to set this up even before you need it, because an overdraft can be an invaluable relief when profits are low.
Get a credit card. Just as you need to understand the potential extra expense of overdrafts, you will need to be careful about interest rates when looking for a new credit card. But this is another option to assist you out of a cash flow crunch. A credit card can take over the costs of covering bills for the interim, or for everyday business spending that can’t be culled. Be sure to carefully compare before choosing which card is right for your business. Factors such as credit limits, fees, and requirements are part and parcel of your research, and should be considered alongside those interest rates.
Secure a business loan. Loans come in a number of different categories, and there are some which are more particular for SMEs which will directly benefit your company, and work in tandem with your plan to get your cash flowing again. A term loan offers a lump sum which you can pay back incrementally, often in fixed weekly, biweekly, or monthly payments. A credit line, meanwhile, is useful for the SME owner who needs capital to hand in order to cover expenses immediately, and the flexibility of a credit line can mean that it can be used on a rolling bases to cover your seasonal cash flow issues. This is great news for you if you find that your cash flow has a recurrent cycle of peaks and valleys, as you would have a predetermined amount as agreed with the bank, which saves time and money (and stress!).
Use Fundbox. Fundbox provides revolving lines of credit for SMEs across the United States. This is a versatile, online lender whose lines of credit are suited to your needs. If approved, you will be given immediate access to your loan, which means you can begin to get yourself up and running again in no time. Fundbox offers flexibility, no collateral requirements, and a transparent fee structure, and easy eligibility. You can also connect your bank account or accounting software quickly and easily to its platform.
Invoice financing. Another great option for you when experiencing cash flow issues is invoice financing, which allows businesses to borrow money against the amounts which are due from your customers. This helps to ensure that your employees are paid, investors are reimbursed, and establishes a means for reinvestment in both growth and operations while waiting for all of your overdue invoices to be paid. Your SME can pay a percentage of the invoices owing to your lender to leverage as a fee for borrowing the money. Otherwise known as “accounts receivable financing” or “receivables financing” this short-term method of borrowing can improve the working capital and help to balance the cash problems during the issue.
Asset financing. This asset based lending method is when a company borrows against 70-85% of the value of its outstanding invoices. This can be a cash advance or an offer from the lender to manage sales ledgers or offer services to your company during the extent of the loaning period. The benefits of asset financing include a more secure position in the bank than an overdraft, for example, and as opposed to a fixed amount that is standard with that overdraft or traditional loan, asset financing means that the credit lent can be extended as your business expands.
The real difference between surviving and thriving is in keeping your cash flow under control at all times of the year, and not just in times of crisis. Make this crucial understanding of how to cover your losses and prepare for lean times a consistent part of your business plan. Cover your losses if you have to, but remember that effective business management means knowing when your cash flow will rise again, and taking steps to eliminate the need for these steps in future.
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