Cash flow is the lifeblood of any business. When you're making money, you're able to meet all obligations, including paying bills and staff. Positive cash flow also helps you further expand your business by reaching new markets or acquiring better or more equipment. On top of that, a surplus of cash can save your business when the unexpected arises.
Take that lifeblood away and serious trouble results. It could mean loss of customer trust or even the end of an entrepreneurial dream in the form of forced bankruptcy or closure. No business owner wants those outcomes.
With greater payment flexibility, a business often can maintain more significant cash flow. This will help give you the security and confidence to further invest back into the business and make 2019 your best year yet. Here are some new payment options designed to give you more control over your cash.
Invoice Factoring
This cash-flow tactic involves borrowing against outstanding invoices that your clients haven't yet paid. Your open receivables amount to cash that is tied up while you wait for clients to pay. By partnering with an invoice factoring company, you'll be able to tap into that outstanding amount, sometimes as quickly as within 24 hours of your funding request. Since invoice factoring is not considered a loan, you don't have to worry about whether a less-than-stellar credit score will keep you from tapping this cash-flow strategy.
The invoice factoring process is fairly straightforward. You sell your open invoices to an invoice factoring company. In return, they give you cash for that transaction. Typically, you can borrow up to 80 or 90 percent of the invoice value. The invoice factoring company sends invoices to your clients for payment. Once the clients have paid those invoices, you receive whatever balance is left, minus a nominal fee for the company's services. You're able to pay your bills on time, without incurring extra interest or penalties.
However, there may be downsides. It can be more expensive than a line of credit, while simultaneously solving only the problem of slow-paying clients. It's also a time-consuming process that requires you to submit a schedule of accounts, a copy of all invoices for factoring and any other documentation the company might require.
A surplus of cash can save your business when the unexpected arises.
Perhaps most significantly, the factoring company will contact your client to let them know they are handling your invoices, which may negatively affect your relationship with them. And, if your clients don't pay the invoices, the factoring company will not pursue this bad debt. You'll still have to make arrangements to collect the amount due and then pay back the factoring company.
If you plan on trying this cash-flow tool, do your homework and thoroughly research the factoring company. Find out how long they've been in business, the industries they work with and their terms and rates. Don't forget to check references.
Bridge Loans
This particular type of business loan lets you borrow against your existing assets, such as inventory and equipment. Considered a short-term solution for cash-flow issues, it's a quick way to get the cash your business needs for continuity. Typically, these types of loans have flexible repayment terms so you can maintain your cash flow even as you pay off the loan.
The caveat here is that you may not qualify for a bridge loan without a good to excellent credit score. While a bridge loan's criteria are not as stringent as some business loans, you'll still need to provide enough assets to qualify. The amount of assets depends on many factors, including the bridge loan company, the amount you are borrowing and your credit score.
Business Credit Cards
There are numerous business credit cards that provide a wide array of benefits, including maximizing cash flow. Typically, you have at least 30 extra days to pay for a purchase on a business credit. However, some cards offer longer interest-free repayment periods.
Beyond the longer repayment terms, some business credit cards include reward currencies. These currencies can be redeemed for products and services, reducing your cost basis and freeing up additional cash you might have otherwise spent.
Many business credit cards also offer expense tracking. This can be beneficial for knowing when to buy items for your business, or even help you stagger purchases to maximize the amount of time before repayment. Downloading expenses into a report helps you identify how you spend money in your business and helps further increase cash flow by reducing purchases.
Ultimately, you should regularly measure your cash flow to see if you really need to try any of the aforementioned solutions. From invoice factoring and bridge loans to a better business credit card, new payment options can help you maintain a strong and healthy cash flow for your business in 2019 and beyond.
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