While your company may be doing well, cashflow is sometimes a major issue. Everything looks good on the books, but money just isn’t flowing as it should. The reality is, you need money to make money because of the day to day expenses that need paying along with salaries and any other little items that happen to cross your desk. If you are having a bit of a temporary problem with cash on hand, here are three ways to increase cashflow going into the new year.
Why Cashflow Can Be a Problem
Sometimes customers aren’t paying in full or on time, and other times you have spent more than you intended on repairs or other expenditures which weren’t exactly in the budget. With money going out and not enough coming in, cashflow can be a real problem. Typically, companies that extend trade credit are the ones who suffer cashflow problems the most. They extend a line of credit to their customers and if that money isn’t paid as promised, it can present a real problem for a company trying to manage with less-than-expected capital.
1. Small Business Loans Might Be a Solution
Many times, a company experiencing problems with cashflow take out a small business loan from their financial institution. This could be a good solution but then again, it might not be the right path to take. Why? Because small business loans are not usually paid within the same day or even a few days down the road. You are having problems with cashflow today and unless money starts flowing, it could get worse. Many small business loans aren’t approved for days, if not weeks, so this may not be an ideal solution.
2. Invoice Factoring Could Work for You!
If you are a new business, you may not have heard of this novel type of lending. Invoice factoring is actually a perfect solution if the underlying cause of your cashflow problems is due to unpaid invoices on the books. Invoice factoring, to put it simply, is when a lender such as BlueVine lends you a certain percentage of your outstanding accounts receivable invoices and quite often you can get the loan within the same day. A factoring company will take a careful look at your ledgers to see what you’ve got outstanding. The will look at when that money is, or was, due.
In some cases, the factoring company takes over your books, collecting on those invoices and other times you can keep control of your books, paying them back as agreed but always hoping you can collect on what’s due you. Many businesses prefer to have the factoring company take over the books because they put their people to work collecting on those invoices, freeing you and your staff to focus on new accounts. This is a great way to improve cashflow going into 2017 because you can focus on making money while the factoring company works to collect what’s due to you.
3. Refinance Loans or Seek Deferred Payments
Whether or not collecting on those invoices is the ultimate reason you are having problems with cashflow, that is not your only concern. You have bills to pay also and you will fall behind if your accounts receivable aren’t being paid. If you have some rather large loans outstanding, you might ask if you can refinance them or seek deferred payments to free up cash you would have been paying on those particular bills.
Unfortunately, this may not free up enough cash to keep you operating smoothly into the next year so while a good option to keep from paying something late, this isn’t always a great way to increase your cash on hand immediately.
Which of the 3 Is Your Best Option?
Small business loans and invoice factoring, then, appear to be the best ways to raise a bit of working capital in the short term. Of the two, invoice factoring is usually the quickest route to take, especially if you need money now. A factoring company will quickly assess your books and make an offer as to what they can reasonably lend based on how reliable your accounts are.
If the factor feels as though those invoices will not be a problem collecting on, they will gladly lend an amount based on a percentage and take their fees off the top as they collect on those accounts. When cashflow is a problem, you need a loan today, not two weeks down the road. Invoice factoring is most likely going to give you the fastest solution but keep the others in mind as they may come in handy for longer term goals in 2017.
