Cash flow is best defined as the amount of money you have coming into and out of the business. Positive cash flow, essentially means that you have more money coming in than going out, while negative cash flow would mean you’ve got more bills on your plate than income to cover it. Unfortunately, when cash isn’t coming in as quickly as it’s going out, its bad for business and in many cases becomes the source of their demise.
If you’re having difficulties with managing common financial issues within your company, you may want to take note of the solutions listed below:
If you’re new to the business and your credit isn’t the best, you are likely going to be turned down for bank loans, small business loans, and lines of credit. You can, on the other hand, qualify for a bad credit payday loan alternative such as an installment loan. Unlike payday loans which would be required to be repaid within 14 days, installment loan providers give you more time to repay and lower interest rates saving you money.
Small Business Credit Card
Another option entrepreneurs have for dealing with immediate cash flow issues is to apply for a small business credit card. Typically easier to qualify for than a traditional loan (but longer to receive than a short-term loan), business credit cards can be used to cover minor expenses like operational costs, inventory, and marketing until you’re able to pay the balance off.
If your cash flow issues stemming from unpaid bills from your customers, it can take a while to get back on track and collect what is owed to you. In this instance, you may qualify for invoice factoring. This is a process in which a lump sum of the balance outstanding is provided to you up front for a small fee. Though less than you’ll receive from your customers, in the end, it saves you from having to wait months to get paid.
If you need more time to cover your business expenses until your cash comes in, it may be worth renegotiating or rescheduling your payment terms. For instance, if everything is due on the 1st of the month, but you don’t typically get paid until the 10th, you might negotiate with vendors and service providers to have your bills be due on the 15th to give you more time to come up with the cash and minimize the potential of penalties or late fees.
Develop a Better Invoicing System
While there are just some customers who fall on hard times or are really irresponsible at paying their bills, sometimes, the cash flow issue comes from having a poor invoicing system. You should work to improve it by providing clear details of the agreement, amount due, date due, and repayment terms. You can also do things like offering other avenues for payment (like online or in person), and incentivize those who pay early or on time to encourage faster payments.
There are a lot of reasons that cash flow problems develop in business. A bad invoicing system, customers failing to pay on time, too many bills due at once, or even the inability to generate profit. The key to reducing the amount of damage this does to your business is to be proactive and use the above-mentioned methods to get out of the jam and execute a plan of protection for the future.