4 Key Small Business Tips on How to Escape a Cash Crunch:
Identify the Cause
What is the driving force behind your cash flow shortfall? Is it customers who are slow to pay their bills? Have you had unexpected expenses? Are your sales down lately compared to previous intervals? Were your cash flow projections overly optimistic?
Cash crunches don't really materialize out of nowhere, and there's usually an operations-related reason for your business's cash flow problems. But before you can rectify the situation and prepare for the future, you need to identify the exact cause of your cash crunch.
Accelerate Your Collections Activities
One of the most common causes of a cash flow crunch is slow receivables. If your customers are slow to pay their bills, it can result in cash flow problems for your business. One of the best ways to resolve a cash flow crunch is to get on the phone and start checking in with your customers and ask them to simply pay their bills. If you have a standard process in place where customers are expected to pay invoices within 30 days, and then overdue payments get flagged for follow up after 60 or 90 days, consider moving up that follow-up step and call everyone sooner than they'd normally hear from you. Many times, customers are happy to pay their bills and they just need a friendly reminder.
Ask for New Payment Terms
Cash flow is often a matter of managing accounts payable and accounts receivable to make sure plenty of money is coming in without sending too much money out. One way to ease a cash crunch is to ask your creditors for a better deal on paying your bills, while also asking your customers to pay their bills more promptly. Consider changing your payment terms. For example, instead of asking for Net 30 payment terms on your invoices to your customers, ask them to “pay within seven days," or say that “payment due upon receipt." Just a simple change of wording might open up some faster payments. Also, ask your vendors if they would accept Net 30 payments. Clarify expectations to make sure you're not paying your own bills unnecessarily quickly.
Get Access to Capital
Cash crunches can be especially nerve-racking for small business owners that do not have adequate access to capital. Sometimes you might need to borrow money on a short-term basis in order to make payroll and pay rent, and keep your business running until your next big paycheck arrives.
If you are slipping in to a cash crunch, a small busienss cash flow loan may be a good solution to get back on track. For this type of business financing, lenders provide you funds and use your future expected cash flow as collateral for the loan. You’re essentially borrowing from cash that you expect to receive in the future by giving the lender the rights to a predetermined amount of these receivables. These are primarily used for working capital or take advantage of short-term ROI opportunities. Your credit scores will usually be checked, but they play less of a role. As the name indicates, the lender is more concerned with inspecting your cash flow (usually bank statements) to approve your application. Turnaround time is another great feature of a cash flow loan, as funding usually takes place in a matter of days.
A cash flow loan may be used for any business expense, but some common uses are:
- Working capital
- High ROI short-term opportunities
- Purchasing highly-discounted inventory
- Business expansion
Short-term cash flow loans are best used for short-term projects that would divert money from day-to-day expenses but ultimately grow your business, like taking on a big contract with a major company or adding extra seating in your restaurant. If you need cash fast, a cash flow loan may be your lifeline.
LVRG Funding is one of the nations largest and most trusted resources of cash flow loans. Want to know if a cash flow loan is right for your business, give us a call (855) 998-5874 or click below to get started. We're here to help!