A large number of small companies face liquidity problems, which eventually lead to difficulties with debt repayments, salary disbursals, and stock replenishment. Some of them can be temporary by nature, but they can disrupt everything if you allow them to persist. If you wish your business to do well and grow, you will need to find solutions to fix the core issue. Here are some financing options and long-term management guidelines that can come in handy for this purpose. Let’s go through them once and see what you can do about it.
Cashflow financing options for small businesses by Michael Giannulis
There are different types of financing solutions that you can avail of to deal with the challenge of cash flow. These include short-term loans, business lines of credit, trade credit, and others. A short-term business loan can process faster as soon as one business day after the approval. These can charge higher annual interest rates, but you can expect the overall capital cost to be cheaper than the long-term ones that levy a reduced annual percentage rate (APR). The business line of credit for small businesses is like a credit card, where interest rate applies only to the outstanding amount and not on the available credit. When you repay the balance, the credit line renews for you to borrow.
Another way to ensure regular cash flow is to negotiate hard with trade partners for invoice payments. For instance, you can ask them to extend your bill payment date from 30 to 90 days. It can enable you to have cash in your account for a longer time.This method is known as trade credit.
Managerial adjustments for cashflow
There has to be a permanent cash flow management system to stop your struggle in this area. For this, you have to better your disposable cash so that you don’t have to worry even if your bottom line doesn’t improve after the addition of revenue.
One of the reasons behind poor cash flow can be the amount of money you have to pay to your suppliers. If you can expand your total profit, your disposable income can also grow. It may not provide you instant cashflow relief, but renegotiating contracts with suppliers can be useful.
Another managerial adjustment you can do is enhancing your invoice processing system. If you don’t use an automated accounting system, you should invest in one. It will keep you updated about the cash reserve and payments by checking the bills’ errors and status. There are multiple benefits of automation. Fewer invoicing mistakes and delays, quick sharing of invoices with clients, and improved insights and clarity are just some examples.
Easy payment solutions for clients
Successful entrepreneurs like Michael Giannulis suggest that small businesses need to find ways to help their clients pay them effortlessly. You can achieve this by establishing a process suitable for your model. For instance, you can introduce auto-billing, online payment, a convenient payment day, etc. Setting up an auto-billing process involves getting your clients to sign up for this cycle so that the due amount can be deducted from their bank account or credit card on the fixed day every month and transferred to you. Or, you can encourage them to pay you through credit card. Many clients find it helpful. But remember that accepting payments through this channel can mean incurring processing fees.
You can also apply creative ideas to receive payments from your client. As you are aware, revenue cycles can vary for different businesses. Due to this, some can be comfortable clearing their bills mid-month and some at the beginning of the month. You can incentivize them by offering this choice. Besides, you can also adopt a carrot and stick strategy for your cash flow problems. You can provide a deal or discount for early payments and additional charges for being late. Figuring out the right combination is crucial, so you don’t end up upsetting them.
It can be the standard practice across every business, but controlling expenses does some good. However, companies have to be wary that they don’t cut down essential expenses that can be harmful to their revenue generation. There are many ways to reduce costs to improve cash flow without affecting the operations. For instance, you can check non-essential expenditures that go into landscaping or pest control. In essence, the focus has to be on enhancing essentials and reducing non-essentials so that wastage stops and the possibility of adding revenue increases. You can nevertheless put some money into other areas also when your cash flow problem has mitigated. The vendors you left can come with favorable discounts to earn back business.
At the same time, you can analyze the cost of business services you use regularly. It can include internet and phone charges, for instance. If you don’t have any specific contract around these, you can explore cheaper options with others. These can appear to be a smaller cost compared to what you spend elsewhere for your business. But one should never overlook any possible avenue or opportunity that allows them to cut expenses and save.
Not having adequate cash flow is one of the main concerns for many business owners. However, there are techniques to fix or solve this challenge. It depends on you what suits you best. Whether you think faster-invoicing works for you or cutting corners, you have to decide the overall management strategy. If you have clarity about your cash reserve, you can move with confidence and focus on helping your business to thrive. To ensure it, you may have to take a combination of short-term and long-term path also. It would be best if you did not hesitate as cash richness is one of the biggest strengths. Just make sure you don’t end up being greedy and start exploiting the resources. Your plan has to be maintaining smoother cashflow, for which even if you have to make some process-driven investments, you should try to pursue them.