Cash flow problems are the number one reason for small business failure. A cash flow problem arises when a small business struggles to pay its obligations as they become due. Most small business owners confront a cash flow problem at one time or another. Luckily, cash flow problems can be avoided with groundwork and the right strategy. You can also use a mix of financial and non-financial solutions to fix cash flow problems. In this article, we’ll explain how to solve the most common cash flow problems with financial and non-financial solutions.
Financial Cash Flow Solutions
Using financing is the quickest way to fix immediate cash flow problems. Here are a few financing options to help you get started:
- Short-Term Loans
Getting a short-term business loan is easy with funding in just 24 hours is a great way to tackle cash flow issues. The short-term loans have higher interest rates (APRs), but the total cost can be marked down than long-term loans with a lower APR.
With Merchant Advisors, you can quickly qualify for short-term business loans with a personal credit score of 600+, with 12 months of time in business, and at least $100K in annual revenue.
- Lines of Credit
The second most suitable financing option to help solve cash flow problems is securing a business line of credit. It works similar to a credit card where you only pay interest on what you used, not on the total credit line extended to you. The best thing about a line of credit is that when you pay down your balance, the amount of credit becomes available to you again.
Merchant Advisors offers flexible business lines of credit with payment in 6 months of your last draw. The qualification requirements include 600+ credit score, 12 months of time in business, and $100K+ in annual revenue.
- Invoice Factoring
Invoice factoring is another way to secure money on your unpaid invoices from customers. In Invoice factoring, you typically pay a small fee to access revenue you’re going to receive from your own customers, rather waiting for months.
- Inventory Financing
You can use inventory financing to finance inventory purchases and is best suited to prepare yourself for a busy season or to fulfill an order.
- Refinancing & Consolidation
Refinancing a small business loan or consolidating your debts into a single monthly payment can help save you money and manage cash flow problems.
Non-Financial Cash Flow Solutions
If you’re unable to secure a working capital loan or don’t want to take up more debt, you can also use non-financial cash flow solutions to solve cash flow problems.
- Re-negotiate contracts with Supplier
Renegotiating with suppliers can help if you’re persistently struggling to keep going and to increase your disposable cash. Before you approach the suppliers to renegotiate your terms, make sure you formulate a plan. You may only get one shot at this to improve your cash flow without dinging your credit.
- Improve Invoicing Process
Another way is to improve your invoicing process to invoice your clients. This can help lower invoicing cost and errors, gives you data on invoicing payments, makes it easier to collect overdue invoices and get invoices to your clients faster.
You can also use accounting Softwares such as Quickbooks to track your accounting as well as invoices. Here is a few best accounting software to choose from for your small business.
- Incentivize Customers to Pay Quickly
If you’re struggling with cash flow problems, get creative and figure out ways to incentivize your customers to pay faster. Providing a method or a reason to pay you faster can help improve your immediate cash flow.
- Prepare for Auto Billing
If you haven’t set up auto-billing for your clients, then its time to prepare for it so you can know when the cash will be in your hand. Setting up auto-billing for an auto-billing cycle will help you know exactly when you can have the cash, so you plan to spend accordingly.
- Accept Online Payments
Accepting online payments is easier and convenient for customers. If you provide them an opportunity to pay you online, they may be more willing to make the payment immediately upon receiving the invoice. Remember, accepting payments online include transaction charges as well. It’s up to you whether to pay those charges yourself or pass those along to your customers.
- Delay Payables a Bit
Stretching out your payables can help with short-term working capital, but in the long run, it can hurt your relationships with trade partners as well as your credit. There are various ways to delay your payables while preserving vital vendor relationships.
- Reschedule Payments
Rescheduling payments of a month can also help solve the cash flow problem. If there are numerous payments due at a particular date of a month, consider negotiating a different due date with some of your trade partners.
- Amend Payment Contract
Most contracts have payments due at the end of the month, but some providers allow semi-annual or annual payment terms. The benefit of these terms is that you don’t have ongoing monthly payments to make – helping you reserve money for cash flow.
- Lower Your Overheads
Lowering overhead costs can also help solve a cash flow problem. Keep in mind that, while reducing your expenses make sure you take measures to maximize your cash flow without hurting your business operations while minimizing the time it takes to receive the money. Look for cheaper options for your utility services such as phones and the internet. Getting new service providers with more affordable rates on these services can help save money too.
The Bottom Line
You will find many ways to solve your cash flow problems. Each cash flow solution can help you with your overall cash flow management, allowing you to foresee exactly how much cash you’ll have on hand at any given time.