Causes and Solutions for Cash Flow Problems

What are the most common issues that cause a business to have growing pains – and how to overcome them?

Business growing pains is not at all a sign that you are a bad business owner.  Almost all successful businesses will go through at least one or more periods where they will experience growing pains. While we cannot say that this is good news, we can say it is a good problem to have but like all problems, a solution is needed. Below are some common problems that businesses encounter that cause growing pains along with some solutions on how to overcome the problem. 

Customers request longer payment terms

This is a vicious cycle that exists typically during tough financial times in the business world.  When your customers, customers experience a delay in the accounts receivable, this hurts their cash flow, which in return will most likely delay the time when they are able to make their payments to you.  This delay most likely means you will have a cash-flow issue too.  As all business owners know, just because your customers are late in paying you does not mean you can be late in paying your staff, rent/mortgage, or your bills. Basically, if your customer has cash flow challenges, they are likely going to create a cash flow problem for you.

Are you upgrading or expanding your business?

All expanding businesses or business upgrades cost money.  Growing your business often requires investing. Maybe you are hiring additional employees, buying more equipment, expanding to another location, or doing a general overhaul of your current facility.

Do you have the cash-flow to cover the upgrade or expansion? Is your cash-flow enough to cover the costs?  Are you concerned that you will deplete all your cash-flow, that might be needed for a rainy day? Have you been postponing your upgrade or expansion?    

Solutions to Boost Cash-Flow for your Business

Traditional Bank Financing

In today’s market, it is very difficult to get a bank line of credit if you are a newer business, I if you do not have a very high credit score, strong collateral, proven record, or two years of tax returns showing company profits. Even if you can obtain a loan, will it be for the amount that you need or will it be what the bank feels comfortable in giving you.  If you can obtain bank financing, it will most likely the be the most affordable form of financing.

Are some of your customers, not worth the headache? 

Are you constantly chasing the same customers every month, trying to collect on your accounts receivable?  You did your part; you delivered the products and or rendered the services but they have not done their part by making a payment.  This is typically a sign that trouble might be brewing.  Maybe their business is in trouble, have done a risk analyst to see if your customers are in jeopardy of going out of business?  If your customers do not pay, what is your recourse?  Sending them to collections is an option but you will pay a 30% fee if they funds are collected but you cannot send a company to collections if they are insolvent.  Can your business survive, if your troubled customers go under, leaving you with unpaid invoices?  We know you do not want to lose customers, but sometimes getting rid of troubled accounts can be a smart thing to do.  Give your troubled accounts and ultimatum, if they cannot or will not meet your guidelines for payment, it might be time for you to spend your time picking up new accounts opposed to chasing bad accounts.

Merchant Cash Advance (MCA) Financing

While MCA loans are quick to obtain and easy to get but they are a financial quicksand.  MCA loans tend to be more expensive than hard money loans.  If you take an MCA loan and you do not closely manage it, it can destroy your business.  You will get a lump sum loan advance from the MCA company.  The day after you receive this money the MCA will take daily withdrawals from your account five days a week at a very high rate.  An MCA loan is the most expensive and dangerous loans out there. 

Invoice Factoring

Invoice factoring exists to gap the time frame from the day you invoice to the time you get paid on your aging invoices.  It’s a cash flow management tool, which is available to most businesses that sell products or renders services, to other businesses.  The process is simple, once you invoice your customers for services rendered or products delivered you can sell that invoice to a factoring company.  The factoring company will verify the validity of the invoice and advance you the lion share of the face value (normally within 24 hours of providing that invoice to us).  The factoring company holds the remaining balance of the invoice in a reserve account where it stays until we are paid.  The factoring company will pay you and your customers pay the factoring company directly.  Once the payments has been received the factoring will send you back your reserve money less the factoring fee.  Factoring your invoices is more expensive than using a bank line of credit but much less than using an MCA loan. When you sell your invoices to a factoring company, you are not taking on any new debt, factoring is not a loan.  You are simply selling your invoices at a discounted rate for immediate cash.  Many companies offer a 3% discount fee to their customers if they pay their invoices within 10 days.  This is the same way factoring works, except we advance you the money within 24 hours and we give your customers 30 days to pay.  If you are interested in factoring an you are ready to take the first step, please complete our non-binding invoice factoring application here