How to Solve a Small Business Cash Flow Crunch Painlessly
There’s a Better Alternative to Invoice Factoring that’s Easier and Faster than a Business Loan
As an entrepreneur and small business owner, you are probably not surprised from time to time to find your operating expenses taking a heavy toll on the availability of liquid working capital. Every business has bills to pay even as it daily engages in the logistical work to generate more revenue and profits, and the costs of doing what it takes to succeed include:
- Buying Inventory for production – goods and services require raw materials and supplies that are often paid with cash or credit. That credit may may be on terms for repayment via invoice, but that serves as a bill to be paid and, in the near future, money out the door. Of course,
- Payroll Budget – whether qualifying as Operating Expenses (full-time staff) or under Cost of Goods Sold (labor hiring expenses), employees and for-hire contractors expect to be paid on time and in full. Cash flow crunches can cause incredible levels of anxiety among staff and result in high worker turnover as some abandon your company in favor of one with a higher impression of financial stability.
- Regular Business Expenses – lights, water, gas and other utilities as well as lease rent along with other cyclical bills for anything required to operate facilities, machinery, equipment, and fleet vehicles. Utility companies tend not to be as flexible as small business entrepreneurs, so they are prioritized expenses that require solid cashflow to keep up accounts up to date.
Your business might thrive on making flexible payment arrangements with customers on terms so that you can do business now and get paid later. Not every vendor or service provider to whom your company owes money will work with you on 30, 60, or 90 day terms, and your employees certainly aren’t going to sit around waiting that long.
Some Warning Signs that a Cash Flow Crunch is Coming for Your Small Business
If you’ve had enough experience with typical business cycles in your industry, you may already have a planning system in place to take necessary actions during uncertain times of the year to make sure you don’t have to go hat in hand to the bank for another loan or lines of credit except as a last resort.
- Relying too much on customers who pay extended invoice terms (60 days, 90 days or more). If you’re watching the calendar with weeks of space between the receivables cash you need to keep your business running smoothly, you’re walking the edge of a financial precipice and should find ways to improve cash flow.
- Outflows start to outpace incoming revenue. This may not be due to a slowdown in production or sales. When you find yourself writing more checks than cashing, this may be a warning sign to start finding creative ways to gain liquid capital quickly before the difference becomes fatal to the business.
- Rapidly growing sales volume matched with slower production and lower inventory. When sales are coming in but you don’t have the inventory to meet demand, or your ability to create new inventory is hampered by a lack of raw material, supplies, or staff, that is a sure sign that a cash flow problem is imminent. This is especially true when you have plenty of business transactions happening but with a growing line of customers who you’ve set up to pay their bills according to the terms of an invoice.
- Too much left over and outdated inventory not producing inbound revenue. If you deal in time-sensitive products or ones that change seasonally, this is a vivid warning sign that working capital stores are at risk. If your inventory is ‘evergreen,’ meaning its form doesn’t change drastically over time, you are still subject to the inevitable outcomes resulting from unsold stock.
- You find yourself pushing outbound payments further back and feel strongly that you should make payment arrangements that extend beyond already established terms.
Even if sales have been excellent up to this point, when your revenue is stuck in the form of billing invoices owed to you, that won’t help. This is especially true when you have plenty of business transactions happening but with a line of customers sitting with 60 and 90-day (or longer) terms. If you end up with enough of those not paying on time, it will spell trouble for your access to working capital but the reliability of future cash flow.
While intermittent periods of high-pressure financial demands during times of slow cash flow can be stressful and frightening, there are some useful ideas used by experienced business operators that can ease the burden while you arrange for an easy, fast, no-risk way to bring in more working capital.
Stretching Small Business Working Capital to Go Further During a Cash Crunch
Many small businesses make practical operational adjustments to last through seasonal or temporary cash crunches. The following are some of the things you can typically do once your spreadsheets show that working capital is about to grow thin:
- Motivating Customers to Pay Early or NowWhether your reliable customers owe you to pay in 30, 60, or 90 days, you have the ability to incentivize clients to settle up earlier in exchange for discounts, added benefits, product and service addons and upgrades, and future pricing considerations.
- Talking to or Negotiating With Existing LendersBanks and other lenders and financial institutions succeed when your business succeeds. Any cash crunch you suffer is a potential risk to your ability to pay off any loans and borrow more when once again faced with pending cash flow shortages.
Though you may not wish to borrow more money, you can work with you lender who should have useful advice on helping you through tight times. Any lender worth the title should be willing to assist, and if not, there are a line of them waiting on an opportunity to profitably serve you.
- Sell or Trade Out Leftover Inventory and Underused Equipment
Not every piece of machinery, digital equipment, electronics, and unsold inventory needs to sit there gathering dust. Instead, it can be readily converted into working capital for business uses. Non-vital resources can serve as assets exchangeable for cash or trade.
- Asset Sales & Lease-backs
Organizations large and small use this tactic, sometimes at the first sign that cash levels may grow tight. Underutilized or old equipment is perfect for raising capital in that you can sell some off, lease or sublease certain types, and in some cases, sell an asset and lease it back as needed.
Non-Traditional Alternatives for Raising Working Capital to Solve a Cash Crunch
You may be in a situation that complicates matters when dealing with bankers and other traditional lending institutions.
You may not be flush with additional assets like extra machinery, business supplies, vehicles, or manufacturing equipment.
Your business may be a newer startup with which you’ve had to be creative and were forced to bypass traditional lenders in favor of flexible business financing.
Also, you may not wish to be held personally liable for loan repayment, or desire to keep your business unencumbered and free from risky collateral liability that would end up putting control of your operations in the hands of the holders of your note. To maintain that kind of independence while still improving your working capital pictured, you will need to think in terms of alternative business financing.
Alternative Business Financing and lending solutions do exist for independent entrepreneurs who do not wish to go the worn-out, longsuffering route of endless paperwork, nervous scrutiny, and risk of rejection that comes with older methods. New, non-traditional financing options for raising working capital include:
- Inventory Loans
Taking a loan or financing using your inventory as collateral. The problem being that if sales stay low, inventory does not convert to cash and repayment becomes a strain.
- Private Loans
This involves soliciting loans from well-to-do friends, family, and other parties with an agreed-upon payback.Also, there are private lending companies that are not traditional lenders but whose lower bar to entry is balanced by higher interest rates and fast payback turnarounds that could come back to haunt.
- Invoice Factoring
Invoice Factoring is a convenient, often helpful option useful to entrepreneurs and business operators who have sales action but static revenue generation because much of it is tied up in unpaid but valuable invoices not due for settlement for upwards of 90 days. An invoice factoring company will ‘buy’ the invoice at a discount, typically fronting 70 to 85% of it’s value up front.That might understandably seem unfair, but they’ll give you the rest after your customer has paid off the invoice, minus a service fee. The worst part of that scenario is that your customer might be late on the payment by weeks, sometimes months. That could force you into an uncomfortable predicament.
Worse, some factoring companies operate like traditional loan companies in that they hold your company liable if your client defaults on the invoice. When that happens, your desire to avoid stressful collection tactics goes out the window, and both you and the customer get hassled.
Stacks of unpaid invoices can quickly result in tightly squeezed cash flow as working capital begins to dry up during the patient wait for inbound customer receivables.
If you’re in this position, you may already have everything you need to solve you cash flow problem, But if you can avoid the downsides, get the money you need, and get stress-reducing support along with it, it would make sense to take a close look, wouldn’t it?
Although there is another option that combines the benefits, flexibility, and speed of converting invoices into cash with a painless process. You’ll read about that shortly, but first, let’s discuss the treasury of untapped cash sitting there as invoices.
Why Unpaid Invoices Can Be the Key to Solving Your Cash Flow Crunch
You see, every invoice has a definite financial value. On average, businesses nationwide hold a minimum of ten thousand dollars in potential cash flow sitting in the form of unpaid customer invoices that, were that revenue made immediately available, would take away the stress that comes when bills are due during times when your working capital levels are shallow.
You may not be in a position to go begging for another loan. Further, you may not want to pay high interest rates, or put business (and personal) assets on the line in order to raise commercial funds.
If that’s the case, your unpaid invoice is the answer to your working capital drought. Indeed, with the right company, an invoice become like very practical debit cards against which you can get the money you need while not have to chase down the client for payment. Rather than wait 30, 60, 90 days or more while expenses stack up, you can get the money far quicker.
Turning Unpaid Invoices into Working Capital to Open up Cash Flow
As experienced entrepreneurs ourselves, we have been in your position, with loads of potential revenue waiting for checks to be written or purchase orders to be processed. We have also suffered the average sixty-five day payment habits of many businesses and sat nervously watching the 30-day calendar go by without due funds showing up in our bank accounts. It’s not a good feeling. It’s stressful and frustrating. That’s why we decided to do something about it.
To help business operators like you, we created Accelerated Invoice Payments through NowAccount – the Business Financing Solution for small and medium-sized businesses that takes the pain out of raising working capital to resolve weak cash flow.
The Advantages of Accelerated Invoice Payments for Small Businesses
There are five major reasons why NowAccount Accelerated Invoice Payments is a painless solution to a cash flow crunch when compared to invoice factoring.
NowAccount lets you quickly convert unpaid invoices into operating cash, but better than an invoice factoring company because we deliver more, faster, with no risk to you, and we help take the pressure off chasing down customers for payment.
Let’s say you have completed a job and invoiced a good customer for $12,000.00. The invoice resides in your accounting system, but not one dollar of that money is sitting in your bank account. Meanwhile, payroll, utilities, and vendor bills are coming due or piling up and you need a rapid influx of operating cash. There is no need to panic, because the invoice you have on hand is the perfect asset tool for pulling out of a financial swan dive.
Instead of getting dressed up, dragging around boxes of files folders, filling out mounds of paperwork, enduring days or weeks of bank manager scrutiny, and then risking an embarrassing rejection, you simply use your NowAccount to exchange the invoice for the money that already belongs to you. Here are other advantages:
Unlike Factoring Companies, NowAccount does not greedily force you to submit entire portfolios of unpaid invoices. You get to choose the invoices you wish to convert to capital.
You don’t go into debt because you don’t take out a loan. You already own the money and merely use NowAccount to get it early, bypassing what could be a lengthy wait.
Completely transparent with no hidden fees like maintenance, poressing, or other charges. Also, there are no early termination fees or monthly minimum penalties.
No personal guarantees needed! We are a Non-Recourse Funding Provider. We will pay you for the invoice, and if the customer pays late or defaults, we will not hold you or your company personally liable.
Rather than potentially putting you in a bind with a 70-80% upfront payment, we pay you 100% of the invoice value minus a small, flat fee.
Once an invoice is submitted an approved, the money is made available typically within one day, which means your business gets to use it right away rather than weeks or months from now.
You can relax – no more chasing down customers to collect money from them. That means no more stress or feeling like jerk. You get to do what you love while we handle the invoice payment details.
Accelerated Invoice Payments works seamlessly with current accounting systems and software like Quickbooks.
With so many advantages and so few hurdles and hoops to jump through, it’s no mystery that more business operators and entrepreneurs are choosing Accelerated Invoice Payments over Invoice Factoring because there is far less risk, less hassle, more money, and fewer problems. If your company finds itself short on working capital and facing a cash crunch, get the money you need easy, fast, and securely using our simple four step process.
We’re excited to work with you to grow your business, get started by prequalifying, or reach out and book a time with our sales team if you still have questions!