Working Capital for Your Small Business With No Debt or Risk
How to Raise Working Capital and Cash Flow During High Inflation Without Debt, High Interest, or Added Risk!
Economic slowdowns raise business risks and can result in a cash flow crunch and working capital shortages. Small businesses that sell to other companies (B2B) and government agencies (B2G) are especially vulnerable.
When prices skyrocket, it doesn’t impact just the average consumer. It hits those of us who are “business consumers” also because the cost of conducting business moves in an upward trajectory, reflecting the inflationary trend’s impact on the purchase price of anything needed to conduct business in the marketplace.
Out of the Pandemic and Into the Fire of Inflation
Economists point to the slowing global economy and post-pandemic supply chain disruptions as sources of inflation. The globally widespread, high inflation rates we’re currently experiencing began in 2021, shortly after most countries fought their way out of the 2020 COVID-19 global pandemic.
Internationally, supply chain problems stemming from logistical shakeups, travel restrictions, and international lockdowns meant to prevent widespread sickness and death resulted in problematic shortages for nearly every commercial industry, including banking and finance.
Not only have many products, goods, and services become harder to acquire because of post-pandemic logistics problems, but business is also experiencing difficulty getting reliable workers who show up, manufacture products, get them to market, and sell them. Initially, it was because many couldn’t get permission to leave their homes or didn’t desire to put themselves and their loved ones at risk of illness.
Rapidly rising costs eating into wages put pressure on employees, destroying previous loyalty to companies they’ve been working at for years to find higher paying positions, more excellent worker safety, and better worker benefits. Even at the tail end of the concern, flare-ups of viral variants made workforce consistency a matter of keeping fingers crossed. The result, regardless, is that every business must now pay more to do business, especially when it comes to bringing on and retaining talent.
Every Business in Every Sector Impacted by High Inflation
Every logistics line for warehousing, trucking, shipping, airlines, and the various carrier delivery services found themselves short of people, supplies, and equipment, even while consumer demand rose to historic levels thanks to easy access to online shopping services. Because of the Corona Virus spread, the global marketplace could not meet and fill historic consumer demand because we were all held in place to prevent catastrophe.
Even with trade and travel restrictions predominantly eased, the resulting supply chain problems continue to plague the global marketplace well into the latter half of 2022, and economists project negative impacts into 2023. Meanwhile, consumer demand is still at historic highs while being challenging to meet.
This kind of situation wherein demand outstrips supply inevitably results in rising prices across the board, from basic raw materials to finished products. Higher costs strike businesses, whether large or small, and companies must adapt to thrive and grow.
The problem for small businesses is that a high inflation economic environment gives larger companies more of an advantage. At the same time, it hamstrings smaller operations that don’t have the same deep pockets or ready reserves of capital to compete against big companies that can more easily afford supplies, equipment, and an expanding workforce.
How Inflation Hurts Working Capital and Cash Flow for Small Businesses
How harmfully does inflation impact small businesses? According to the Consumer Price Index, the year-over-year inflation rate was the highest in four decades, measured in June 2022 at a jaw-dropping 9.1%. A four-decade record level of increasing prices that painfully hits every small business for numerous reasons, among which are the following five:
First, Inflation Negatively Impacts Your Workforce.
Hiring good workers has become expensive, and keeping great employees has evolved into an unusually competitive, costly investment in the face of desperate companies fighting to attract and retain the same talent.
Climbing consumer prices place a stressful monetary and emotional burden on employees who have to live within the means of the wages you pay them. When the price of a loaf of bread doubles or triples, your employees feel the pinch because every good related to the increasingly expensive basics becomes more costly.
The paychecks you issue then don’t stretch as far as the previous year. That leads to employee retention issues when stressed-out workers seek higher pay from you or begin looking around for higher-paying jobs. These conditions mean they simply leave your company for better pay offered by your competitors who are fighting the same battles you are.
Second, Inflation Heats Up Supply & Raw Material Costs.
Rising prices hurt your business by driving up the cost of the raw materials and supplies you need to manufacture the goods you take to market. Not only does this put pressure on your company’s bank account, but it can also result in higher pressure from your suppliers. After all, they are similarly affected with just as strong a need for liquid working capital. Money pressures on your suppliers can mean shorter payment arrangements for you as they demand payment sooner to meet tightening deadlines from their providers. The pressure ramps up on you, and you, in turn, must ramp up pressure to get paid by your clients.
Third, Inflation Causes Equipment Costs to Spiral.
The cost of acquiring fleet vehicles for a small business in 2021 and 2022 is a perfect example of the pain brought by ballooning prices. Global supply chain interruptions impacted every industry, including automobiles. A microchip shortage has caused purchasing a new fleet vehicle to cost 17% more than before the pandemic. That is, If the car, truck, or van can be bought at all without ordering months in advance.
Most small and medium-sized operations find a seventeen percent rise in equipment costs to be a painful cost increase and have no choice but to pass that added expense on in the form of higher product and service pricing.
Worse, small businesses have to compete against one another to get their hands on the equipment, which benefits equipment dealers who have inventory as they don’t have to discount pricing as much (if at all), but when there is no inventory, all parties suffer.
Fourth, Inflation Ruins the Purchasing Power of Existing Working Capital.
As a business person, the most important purpose of working capital is to grow, scale, and expand your business. The problem inflation brings to the equation is that the same revenue you enjoyed in previous sales cycles will not buy what it used to, so you need to generate even more working capital to maintain the same level of operations. At the same time, prices continue to surge during inflationary periods.
Suppose you’re like most entrepreneurs focused on business growth. In that case, you need to consider current costs and projected business growth, even if the economy remains shaky and prices tick upward.
Fifth, Inflation Causes the Price of Borrowing to Skyrocket.
During tumultuous economic times, banks become pickier about lending money and selective about which businesses get approved. They cease loaning at cheaper rates and show deeper scrutiny in assessing your ability to repay the loan.
In some cases, they establish previously uncalled-for collateral requirements that put your personal or business assets on the line.
Some lenders lock cash-strapped clients into shorter payment terms with higher interest rates. Higher interest causes the loan cost to go up and stokes pressure to repay promptly to avoid high penalties or damage to business credit.
Sixth, and finally, Inflation Causes Slow Paying Invoice Clients to Pay Even Slower.
In uncertainty, companies behave as any normal person would. Every level of business starts rearranging monetary priorities to take care of the most important, vital matters first, moving non-threatening priorities to lesser consideration.
On average, a 30-day invoice payment agreement takes 65 days to settle with a client. That’s on a 30-day invoice. Consider how long it takes to get paid on a 60 or 90-day agreement. Worse, think of how a shaky economy adds to the difficulty of collecting your money within the agreed-upon timeframes. Clients don’t start paying faster when the economy weakens.
Inflation Increases Cost and Difficulty of Acquiring Small Business Loans for Working Capital.
When the economy runs smoothly, your small business has several financing options available to raise the money needed to grow. Easy money is all around during good times and can help keep day-to-day operations going well enough to ride out any cash flow crunch.
However, when things slow down, purse strings are yanked tight.
Higher sales transactions and quick payment add security, stability, and sustainability to the operation. In contrast, taking on debt adds insecurity, instability, and potential default if sales transaction payments fall behind.
Yet, cash flow is the lifeblood of a small business, and if it is restricted, companies have to consider every option or face failure. Standard business funding options useful in a strong economy are still available in an inflation-riddled one, only harder, costlier, and riskier to take on.
A) SBA (Small Business Administration) Loans – An SBA Loan can help fuel business growth while letting you keep your equity.
When used strategically, SBAs give small businesses the financial resources necessary for operation, development, and expansion. With SBA funding, you increase available cash with a timetable to repay the loan, which is practical for several purposes, including payroll, equipment, logistics, and paying suppliers.
The drawbacks are the lengthy application process, needing a solid credit score, sometimes waiting months to get the money, and sometimes your business can lose assets should you default on payments.
B) Business Line of Credit – A business line of credit gives you flexibility and greater control in that you only dip into the funds as needed. Lines of credit allow you to spend and invest more strategically, but it is still a liability.
Unfortunately, it can affect your credit score and financial picture; balances and payment history could become part of your credit file. Further, there are unscrupulous lenders taking advantage of a high-inflation economy to drive up interest rates for their selfish financial gain, hiking costs for small businesses and putting companies at higher risk during uncertain times.
C) Invoice Factoring Loans – Invoice Factoring allows you to take invoices issued for goods and services you’ve already delivered to other businesses and convert them into cash, reflecting a percentage of the invoice value. Despite some long-standing obstacles, factoring your invoices is convenient because you can sell invoices for a discount and put the money received to use.
The disadvantages of factoring invoices (invoice loans, selling invoices) can be painful, however, because invoice factoring companies have earned a shaky reputation due to certain providers engaging in abusive, questionable tactics that penalize small businesses in several ways. For example,
- Some invoice factoring firms charge hidden fees and pricing gimmicks to increase their profits at the expense of the small business client.
- High-interest rates and administration fees eat into available working capital.
- ‘Recourse’ arrangements place your small business assets at risk should the invoiced customer prove slow to pay or defaults on the money owed.
- Invoice factoring organizations often give a negative impression by coming between you and your clients in the manner of a loan shark and can muddy your brand reputation as the factoring company makes your business seem fiscally unstable.
The good news is that being in a high-inflation economy has not eliminated your options for raising working capital, but it has made it riskier if the source of that money is debt piled onto your balance sheet rather than from transacting business and getting paid by your customer. When the economy is shaky, you need a solid resource to open the gates to better cash flow without handcuffing your organization. You certainly shouldn’t allow lenders to take advantage of your situation.
Should Your Small Business Risk Piling on More Debt During High Inflation?
Small business owners, executives, and decision-makers are now forced to jump through more hoops than ever, put up heavier collateral, and in some cases, place their own assets (and those of friends and family) at risk. So, one of the biggest concerns when trying to raise working capital in a shaky economy is, “How do we raise badly-needed working capital for our small business with the least hassle, at the lowest cost, and as fast as possible without putting our operations at risk?”
For many companies like yours, an inflation-fueled business climate is the worst time to take on an additional financial encumbrance when you may already have a stack of financial obligations to be met. Stacking another bill atop the pile when what you really need is for slow-paying customers (and clients on longer payment terms) to settle their bill so that you can put the money to use to grow your business.
While in better times, you might have felt less worried about using a bank loan from your financial institution, the current economic paradigm shift following the tail-end of the global Covid-19 pandemic has changed how the business loan game is played.
Smaller companies that may not have massively deep pockets to ride out the economic storm find the financial deck stacked against them. But, the fact that you invoice your customers can be the source of your business salvation. So, if your business operations are moving along well but your customers are taking their time with your money, there’s an answer that can eliminate your wait, solve your cash flow crunch, and free you up to grow your business fearlessly.
How Does a Small Business Raise Working Capital Without Getting Buried in Risky, High-Cost Debt?
If your company sells to other businesses (B2B) or does work for government agencies (B2G) and provides client invoices on payment terms, then there is a way for you to boost working capital without putting your company in further debt or yourself at financial risk. Further, you can do it without exorbitant interest, and you do not have to put your own or the company’s assets on the line as collateral. The no-risk, the lowest-cost answer is Accelerated Invoice Payments by NowAccount because it is not a loan, not debt, and not invoice factoring – it’s better!
NowAccount is the revolutionary new patent-pending working capital solution for smaller and medium-sized companies that is built from the ground up to help you navigate tough economic times without hurting your organization. Unlike traditional loans and much better than Invoice Factoring, your NowAccount Working Capital Solution gives major benefits and none of the disadvantages:
- With Accelerated Invoice Payment through NowAccount, your business gets paid immediately on invoices that you would otherwise have to wait at least 30, 60, 90 days or more for payment.
- You get the full value of your invoice minus a small, one-time administration fee.
- There is no obligation to convert most or all of your clients to immediate invoice payments. Some companies do prefer to because of the convenience of getting paid immediately. You can choose exactly which account receivables you want to get paid on immediately and leave the rest just as you have them.
- Nothing changes for your customer. Even though you get paid immediately, your customer still gets to pay in under the agreed-upon terms that are comfortable for them.
- If your client defaults on the invoice, neither you nor your company are held responsible for it. With NowAccount, both your personal and business assets are safe.
- NowAccount brings an end to uncomfortable, stressful Accounts Receivables collections efforts. You no longer have to chase down customers for payment!
- NowAccount works perfectly right alongside any existing SBA or Lines of Credit you already have in place, and it does not harm your balance sheet because it is not a loan and it is not factoring – it’s better!
Thanks to the NowAccount Accelerated Invoice Payment Solution, you can stop letting your clients use your company as an interest-free credit provider. With it, you move your company out of stressful cash flow crunches so you can enjoy the same privileges as a Business-to-Consumer (B2C) by getting paid immediately so the working capital you have earned can be used to scale your operations, get more customers, and make more sales.
Banks are known for putting mechanisms and barriers in place to lower their exposure and maintain strong balance sheets. They accomplish this by passing any risk onto small business borrowers desperate enough to jump through the necessary hoops, wait for an extended period to get money and pay the extra cost for the privilege. If that sounds unpalatable for your small business, NowAccount gives you a better choice.
Is NowAccount Accelerated Payment Solution the Perfect Answer for Your Small Business?
Many small businesses find themselves challenged in times of high inflation and bulging interest rates as they may not perfectly match up with the long list of requirements if one is to apply successfully. It is a historical fact that tough economies cause risk-averse banks to make it even more difficult for small and medium-sized companies to raise badly needed working capital to grow.
Yours may be among the many thousands of small businesses that have found themselves at a disadvantage for several reasons that might include:
- Your company is a busy start-up or newer business lacking a long, steady credit history. You’re still making decent sales, even if your cash flow is tight. Steady sales with low cash flow can happen even if you’ve been in start-up mode for years, as many businesses adapt to operate flexibly (longer payment terms, etc.) in ways that may not appeal to the big banks or traditional lenders.
- Your company doesn’t have the necessary collateral, inventory, or equipment to use as leverage in seeking out a loan from a major business lender.
- Your company may already have a Small Business Association (SBA Loan), or Short Term Loan, on the books that need to paying and would find it difficult to get an additional loan or line of credit either from your current bank or a new one.
- Getting a business loan isn’t a problem for you. Still, you are looking at a minimum required loan amount you know would end up just another hurdle to business operations, thus unbalancing your books while heaping an even heavier obligation on your company.
- You have previously used ‘Alternative Funding’ sources and are currently locked in unfavorable agreements that prevent you from using existing resources to raise more working capital.
- You are hampered by a ‘recourse’ agreement with an Invoice Factoring Company you tapped for invoice loans previously. That arrangement places your business resources under a pre-existing commitment that restricts your fundraising options.
- Your cash flow problem is not due to a slow economy but because of slow-paying customers whose invoices are sitting as Accounts Receivables awaiting payment on 30, 60, or 90-day terms. In this case, you don’t want more debt and surely have no desire for higher risk but simply want to get paid quickly for the money already owed to you.
If your business situation meets these criteria, then you are smart to avoid adding risk when what you really want is money. Financing small business operations does not have to be complicated, painful, or expensive. With your NowAccount Accelerated Payment Solution, You can avoid chaining yourself to lenders who take advantage of your needs and earn some of the same perks afforded to larger companies.
- Get the money you are owed quickly to put it to good use.
- Keep costs at a bare minimum, maximizing your profits.
- Infuse liquidity back into your business for day-to-day work without stress.
- Focus on what’s most important such as increasing sales, hiring and training talent, growing and scaling your operations, and staying competitive.
- Convert owed money on goods and services you’ve already delivered into immediate working capital to keep your balance sheet clean because it can make added debt unnecessary.
- The working capital at your disposal puts your company in the position to incentivize vendors and suppliers who can give you deals for paying them early, thanks to your company’s new liquidity. In an economy where prices are rising higher and faster, businesses that can pay quickly can find themselves financially rewarded. This means more cost savings; in a shaky economy, that’s money in the bank.
- Win larger B2B and B2G contracts because NowAccount gives you the flexibility to offer extended terms
- Get paid in four simple steps without headaches or embarrassment.
High inflation, high-interest rates, and rising risk have made it harder to keep your small business’s day-to-day operations running on a smooth, upward trajectory. However, if your company needs working capital quickly, at the lowest cost, without adding higher liabilities and risks, then Accelerated Invoice Payment through NowAccount may be the ticket to the worry-free working capital you’ve been hoping for.