Growing your business is a challenge, and many entrepreneurs have faced cash flow crunches. In a word, it takes money to make money. Growing businesses need to pay employees, stay current on vendor invoices, and cover day to day expenses from business locations to inventory. But if you’re finding yourself running short on funds, there are several creative approaches you can take to maximizing cash flow. Here is a closer look at how to improve capital without using a bank.
Evaluate your inventory: Are you sitting on inventory that’s not selling? Then it’s time to take a hard look at your assets and get creative about ways to get them moving. For example, could you offer a discount or other incentive to get merchandise selling? Is it time to spearhead an advertising campaign? Could you offload the inventory at a loss, which you can take on your taxes, to a partner or competitor to generate short-term revenue? If you’ve got product to sell, the best way to improve your cash flow is to be creative about how you convert that into cash.
Look at what you’re spending: Do you have current levels of debt that are being charged at a high interest rate? Paying those off faster or finding a way to refinance them at a lower interest rate could free up hundreds in interest payments each month. Another important question is whether you have fixed expenses that could be reduced or eliminated entirely. For example, do you need to pay the expensive month to month rent on a fancy office space when today’s collaborative tools enable remote productivity? Finally, do you need to slash costs by eliminating some positions and taking on more yourself or consolidating positions?
Go after accounts receivable: Do you have customers or clients that are slow to pay? If so, you’re basically giving them a loan and floating their businesses. Look at your terms. If your contracts are currently net sixty or net ninety, try reducing your terms to net thirty or paid upon demand. The more you can shorten the time between a sale and a collection, the better your cash flow will be. If you have delinquent payments from customers, make collecting them a priority. Personally call each overdue client and follow up on payments. Consider using a collections agency to pursue truly overdue bills.
Look into factoring: With accounts receivable factoring, you essentially take a portion of the invoices that are due to your business and sell them to a third party. The third party either advances you a portion of the cash or charges a processing fee. Principally, that lets you access cash ahead of your net terms in order to keep things operating smoothly or enables you to invest in growth. Since factoring isn’t a loan, users avoid the detailed credit inquiries and long approval times associated with bank financing.
Obtaining business financing can be a challenge. But there are a number of ways, from improving your internal sales and collections processes to taking advantage of accounts receivable factoring, to make the most of your cash flow without dealing with a bank.