What can I do to Improve the Cash Flow of my Business?
Ever thought….. ” I wonder what I can do to improve the Cash Flow of our business?”
If you’re like us and running the type of small business that has lumpy cash transactions, at various times of the year, you will have asked your self this question many times! Especially around Christmas time when your customers all disappear into the dark abyss on their well deserved Christmas Holidays!
Where does that leave you? How can you still earn money? How can you help to smooth that lumpy cash flow out?
Here are some of the ways in which you can improve the cash flow of your business, including:
- Overdrafts
- Credit cards
- Factoring, debtor finance or invoice finance
- Trade finance or stock finance
- Car leasing
- Equipment leasing
- Software and telephony leasing
Overdrafts – traditional but declining
The traditional way for a business to improve their cash flow was to run an overdraft. However, you’re charged a fee to get an overdraft and ongoing fees to maintain the facility. Also interest rates on overdraft facilities tend to be higher than for residential home loans. With more flexible business finance products emerging, overdrafts are becoming a less popular way to address cash flow issues.
Credit cards – expensive money
Credit cards are easy to get, easy to use, and can be a good way to finance and monitor employee business expenses. However, they are generally not the most economical way to deal with cash flow problems. The interest rates on credit cards tend to be higher than for residential home loans, and you can quickly get in over your head. There are other specialised ways to improve your cash flow.
Factoring, debtor finance or invoice discounting
You’ve done the work and sent the invoice but you don’t have the money. This is particularly frustrating when your debtors don’t pay on time – which is most of the time.
With factoring (also known as debtor finance, invoice factoring, invoice discounting or invoice finance), a lender gives you a percentage of the invoice (usually 80%) in cash, then the remainder when the invoice is paid. This service incurs a charge but can save your bacon in cash flow terms. Beware that if the debtor ultimately does not pay the invoice, you must repay the lender all the money you’ve been advanced.
Trade finance, stock finance, export & import finance
If you’ve bought stock, it can be some time before the finished goods are sold and this can have serious cash flow implications – particularly for importers and exporters.
With trade finance (also known as stock finance, inventory finance, export finance or import finance), the lender gives you a percentage of the money against the stock you’ve purchased. Again, you pay for the service but it can make all the difference in cash flow terms. Lenders are much less inclined to loan money for stock sitting in the warehouse than they are for confirmed orders.
Car leasing & equipment leasing
For many small businesses, leasing cars, computers and equipment is preferable to outright purchase because it improves your cash flow.
Software and telephony leasing
This is not a well known option, however there are limited companies out there who do Software and Telephony leasing! This means when you are spending money implementing a new CRM, stock and inventory system, developing an app, building custom software or even implementing a new phone system you can look to secure finance for these! All of the above mentioned can cost a business a lot of spare change, it could benefit you to look at finance and leave your cash free to flow!
