working capital

3 factors that keep working capital flowing into your business

Improving cash flow and optimizing working capital is possible with these three strategies.

Keep working capital flowing into your business

Working capital, aka cash flow, is vital for a successful business. After all, without sufficient working capital, businesses can end up missing opportunities, wasting money and ultimately fading away.

But many companies struggling with cash flow may wrongly assume that the only way to remedy the situation is through borrowing via traditional loans and lines of credit. Although this can be a good solution, there are many other ways to optimize working capital before going further into debt.

Factors that affect working capital

There are key factors that have a direct impact on cash flow. As a business owner, these will be top of mind every day.

  • Accounts receivable: Money coming into the business increases working capital, so you’ll want to speed up this process as much as possible.
  • Accounts payable: Conversely, delaying outbound payments will keep cash in your business for longer.
  • Inventory management: Businesses that sell physical goods must be careful to balance their inventory with cash flow. Having capital assets sitting in a warehouse limits cash to use elsewhere.


Three strategies that help optimize working capital

So, what can you do in each of these areas to increase working capital and cash flow?

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Accounts receivable

It makes sense that the quicker you get paid, the more cash you will have on the books.

Begin by negotiating favorable payment terms with your clients, reducing the time they have to pay an invoice. As an SMB, you may find yourself lacking the leverage to achieve this when doing business with larger companies. 

One option is to invoice customers upon shipping or receipt of goods, or as soon as a service has been performed, rather than waiting until month end.

You can get around this by adopting a real-time payment tool for your goods or services, which gives clients an easy way to pay as soon as you send the invoice. It can be as simple as adopting a system that uses payment links sent via email.

Also, look at the efficiency of your invoicing cycle. How many days does it take for an invoice to land with the client after it has been approved? If you can shorten this time you’ll receive payments sooner.

Related: Read the Cash Cycle Guide

If you’re in a position where you regularly have large amounts owing to you, you could look at invoice factoring. This gives you access to working capital for a small percentage of your accounts receivable based on the amount due on an invoice. Also known as ”accounts receivable financing,” you could be more easily approved for this solution than traditional business financing.

Working capital for SMB

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Accounts payable

On the A/P side, businesses should look at increasing Days Payable Outstanding (DPO). This financial ratio shows how long it takes your company to pay invoices from suppliers, usually measured annually or quarterly. The higher your DPO, the better your cash flow since the amount you owe stays in your hands for longer.

Here’s how you can calculate DPO with a simple formula:

Days Payable Outstanding =

(Average Accounts Payable / Cost of Goods Sold)

x Number of Days in Accounting Period

One way to increase your DPO is to negotiate better payment terms, perhaps increasing from 30 to 60 days. But as mentioned above, it can be difficult for smaller enterprises to achieve this when dealing with larger corporations. Everybody wants the most favorable terms for themselves, and more often than not, the big guys win.

You may have better luck striking a deal with vendors or suppliers you have had a long-standing relationship with and who may agree to extend your payment terms. Depending on the supplier, you may also ask for longer payment terms if you purchase larger quantities. However, this will vary from supplier to supplier.

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Inventory management

We can’t stress the importance of finding the right mix of inventory if you’re selling physical goods. 

Buy too much stock up-front, and your assets will be tied up until it is sold. But buy too little, and you may lose out on sales or disappoint customers with longer than expected delivery times. 

It may be worth investing in inventory management software, which lets you find that balance based on lead times, stock value and other factors.


There’s always a way to improve working capital

The strategies mentioned above don’t require you to compromise how your business operates — you just need to make slight adjustments to optimize for working capital and increase cash flow. By evaluating the current way you send and receive payments, including the systems you use to manage your inventory and accounting, you’ll improve your working capital and enable your business to grow the smart way.

 

business funding

Is business funding missing genuine human partnerships?

Learn how Liquid Capital Principals provide more than just business funding for SMBs.

business funding

Looking for the right funding partner is like looking for a needle in a haystack. Although they might feel hard to find, when you find a great partner, it can be quite rewarding. 

Liquid Capital Principals are the needle you have been looking for. Here is how we’re different and why you should consider working with us at the Liquid Capital team. 

We understand small businesses because we’re business owners, too

Liquid Capital Principals are very much in-tune with the needs of SMBs. That’s because we, too, are business owners who understand what it takes to run our own operation. We are passionate about helping other entrepreneurs reach their dreams and ambitions.

We also recognize the pressure that comes with finding capital and funding growth. But more so, we can recognize that unsettling feeling of loan rejections from traditional lending channels such as banks. 

We listen and acknowledge your needs 

Liquid Capital Principals have roots in small and medium-sized businesses, so we are trained to listen and understand the specific needs and challenges of SMBs. 

While conventional lenders try to categorize both small and medium-size businesses together and offer a «one size fits all» loan, our Principals take the time to talk to clients, understand your business, and offer you customized solutions that are designed specifically for your business volume and scope.

We’re not afraid to be honest with you 

business funding

Businesses may feel like they have no choice but to approach their bank for a traditional loan. 

When you work with Liquid Capital, our goal is not to sell you on pervasive funding. We propose solutions that will offer benefits in both the short and long-term. 

Whether it’s asset-based lending, PO financing, invoice factoring, purchase financing program, equipment financing and leasing, working capital advance or top-up financing — you should know the pros and cons of each option.

Often, we have clients that come to us with a certain solution in mind, but after discussions and strategic advice from our Principals, they get a better understanding of the alternatives that end up costing them less while receiving more capital. 

Related: AV company booms by adding invoice factoring


We give you more control over how you’re funded 

Traditional lending has a “take it or leave it” approach because there’s only a couple of main solutions: loans or lines of credit. Borrowers don’t have a lot of say or control on the terms and conditions, and have to pass strict underwriting standards to get approval. These traditional solutions can leave you in debt and having to manage payment schedules that make you feel burdened, not relieved.

In comparison, Liquid Capital offers a wide range of alternative funding solutions, and our expert team walks you through the solutions so you have a say in how your business is financed. One key example is our invoice factoring option that allows companies to access capital without adding more debt to their books. 

Not only do our Principals present alternative options that would best fit your business model and operational needs, but we also offer strategic advice based on industry trends and financial best-practices — so you always make an informed decision. 

Our success is tied to how your business thrives, so you always have more control over your business finances when you work with us. 

 


Liquid Capital provides a wide range of funding solutions for businesses of all shapes and sizes. Our Principals understand the challenges SMBs are faced with today and can help them smartly borrow money. Contact us today to get the financing your business needs from the people who understand your business.

 

Images by Adobe Stock and Pexels.

February 2021 Recent Fundings

Recent Fundings – February 2021

February 2021 Recent Fundings

finance your business

Business booming? Here are 4 ways to finance your business for growth

Do you have plans for expansion? Make sure you have funding lined up. But with so many options available, it can be difficult to pinpoint an option that makes sense for you. We share four ways to finance your business for growth. 

finance your business

 

When you’re planning for new hires, searching for a bigger office space, increasing your inventory or expanding your business in other ways, cash flow can be a significant  concern. Fortunately, there are many  financing options available for these types of situations. 

We’ve talked about other ways to finance a business, but in this post we’ll cover some more alternative funding methods:

1. SBA loans

SBA loans are small business loans partially guaranteed by the U.S. government, making them less of a risk for the lender you’re working with. Similarly, The Canada Small Business Financing Program offers loans to SMBs that are backed by the government. 

These loans come in a variety of amounts with APRs as low as 6.5%. They’re relatively harder to qualify for and you’ll need to meet the following requirements:

  • At least two years of business experience.
  • A credit score of 640 or higher. 
  • At least $100,000 in annual revenue.

However, government funding may slow the application process down so you should only apply for these loans if you can wait at least three weeks to receive the funding.

2. Business lines of credit

Sometimes, it’s hard to know how much money your small business needs to cover expenses, which is why some companies opt for a business line of credit. 

A business line of credit (LOC) is a revolving loan that gives SMBs access to a fixed amount of capital to meet short-term working capital requirements. Common examples of LOC uses include: 

  • Repairing business-critical equipment
  • Purchasing inventory
  • Bridging a periodic cash flow gap 

That way, you can borrow what you need without spending the entire line of credit.

3. Equipment finance and leasing 

finance your business - warehouse

Equipment finance and leasing is a loan designed specifically for companies wanting to purchase new equipment but don’t have the capital to make the investment. The lender lets you use the earnings generated from your new equipment to make monthly payments, cover additional overhead costs and contribute to your profits.

4. Purchase financing

If you have a good credit score, you can use purchase financing to fund a one-time business purchase. 

Purchase financing is a short-term funding solution that companies use when there’s an opportunity for immediate growth. They may also apply for purchase financing if they need to take advantage of a bulk-sale offered by a supplier or purchase inventory at reduced rates. 

Bottom line

Small business expansion is exciting. Once you see signs that indicate it’s time to grow your business, it’s important you prepare yourself for growing pains. 

One of the biggest challenges is how to facilitate growth and avoid unexpected problems that emerge when your business is expanding too fast. 

Another setback is the lack of funding to back-up your expansion plans. That’s why it’s crucial to explore different ways to finance your business — such as SBAs, LOCs, purchase financing or equipment financing — and select a funding option that will take your business to the next level. 

 


At Liquid Capital, we understand what it takes for small, medium, and emerging mid-market businesses to succeed – because we’re business people ourselves. Our company is built on a network of locally owned and operated Principal Offices, so whenever you’re talking to Liquid Capital, you’re talking directly to your funding source and a fellow business person.

Images by Adobe Stock and Pexels

Driving results

Serna’s Trucking: Driving results within the construction industry

How one business owner found their road to success with the help of alternative funding and strategic business advice. This is the success story of Serna’s Trucking

Serna's Trucking - Driving results

In 2003, Claudia Serna decided to open a trucking business in San Marcos, Texas. Originally from Mexico, Claudia first thought of starting Serna’s Trucking after she went through a divorce. With the support of her mother, the savvy entrepreneur was able to purchase her first truck. Over the course of two decades, Claudia began expanding the company and soon became an important part of the local economy.

As the San Marcos region has grown and developed, the area has experienced an infrastructure boom, along with the need for transport of construction materials. Ready to meet this demand, Serna’s Trucking has been able to capitalize on the need for construction transport.

A Financial challenge — and a helping hand

Serna's Trucking

Like many business owners, Claudia had struggled with delays between receiving payments from her customers and paying her subcontractors. Previously, she had needed to wait several weeks to receive the funds for her outstanding invoices.

When her business advisor and contacts at the Greater Austin Hispanic Chamber of Commerce suggested that she seek out financing options to grow her business, Claudia decided to look into it further. She was eager to find a better solution that would help her pay her subcontractors faster.

However, Claudia had never used financing before. Instead, she always paid in cash or used informal loans from friends and family. Empowered with potential access to the working capital she needed to grow her business, Claudia decided it was time to take her business to the next level.

Liquidity at the right time

Claudia’s business advisor suggested she seek assistance from the Liquid Capital Principal in Austin, who also happened to be an active member of many Hispanic community organizations in Central Texas. Bringing over 20 years of expertise in alternative business finance, this partnership with Liquid Capital was the perfect fit for Serna’s Trucking. Her Principal quickly got to know Claudia’s business needs and challenges and recommended that she make use of invoice factoring.

“By having the money fast, we can pay the subcontractors fast. They don’t have to wait until we get paid. Now, we can pay them the same week.” — Claudia Serna, Owner of Serna’s Trucking

With invoice factoring, Claudia was able to significantly improve her cash flow. After invoicing her customers every week, Claudia could now send the invoices directly to Liquid Capital with a request for funding. Liquid Capital then sends her an advance on the funds due and she is able to pay her subcontractors immediately. Next, Liquid Capital collects the payment from Claudia’s customers and sends her the rest of the money, minus a small fee.

“The partnership has been really positive and Liquid Capital helped position us to grow the company. Last year, we grew around 20% and we expect to grow another 20% next year. With this funding strategy, we’re set up to keep expanding.” — Claudia Serna, Owner of Serna’s Trucking

The liquidity offered by invoice factoring has made a big difference for Serna’s Trucking. Since partnering with Liquid Capital, the company has seen consistent year- over-year growth.

Serna's Trucking

Driving business strategy

But access to cash isn’t the only way Liquid Capital has helped Serna’s Trucking. The partnership has had many other benefits as well.

For starters, the weekly invoicing process has provided a useful way for Claudia to organize and manage her invoices. In addition, Claudia and her dedicated Principal have developed a strong working relationship and she often turns to him for business advice. For example, when Claudia was recently considering working with a new company, her Principal was able to help her by running a credit check and evaluating the risk.

“Sometimes I call my Liquid Capital Principal when I have questions and he is there to lend a hand. When we wanted to start working with a new company, he was able to advise me about the possible benefits and risks. It’s a really good relationship.” — Claudia Serna, Owner of Serna’s Trucking

Building up the community by giving back

As the company has focused on its own business and forging through the ups and downs, they have never forgotten their local community.

In fact, one of the most remarkable things about Serna’s Trucking is Claudia herself. She uses her success to make donations and give back to the community, including assisting teen sports programs at local schools. Her extraordinary efforts have earned her recognition from organizations in San Marcos and neighboring cities.

Claudia was the recipient of TAMACC’s 2019 Businesswoman of the Year Award, and the 2018 Minority Construction Services Firm Award from Minority Enterprise Development Week, San Antonio. She was also nominated for the 2019 RHCA Luna Awards.

Avoiding potholes and full speed ahead

While the global pandemic has presented some significant hurdles for the business, progress has fortunately remained consistent for Serna’s Trucking. In fact, Claudia is now thinking of expanding even further. In the near future, she hopes to purchase more equipment, such as GPS, as well as adding more trucks to her fleet.

Over time, Claudia’s company has grown to become more than just a business. She refers to it as “like a family.” And with continuing growth expected in the years ahead, the Serna’s Trucking family is looking forward to the open road ahead.

 

Up Next: Learn how this military defense manufacturing company gained access to a $2 million credit facility.