Listado mensual: junio, 2022

Overcome cash cycle droughts with these savvy cash flow management tips.

 

For entrepreneurs and business owners, nothing is more important than positive cash flow. However, between wanting to grow your business, the increasing costs of replenishing inventory, hiring staff and waiting for customers to pay invoices, maintaining a healthy level of working capital can prove to be a delicate balance.

As one report recently found, small businesses are more likely than their larger counterparts to have financial constraints — and nearly a quarter of smaller businesses said they expected maintaining sufficient cash flow to be an obstacle in the months to come.

Add in the fact that nearly all businesses are also concerned about inflation, according to 88% of small business owners who say it’s affected their companies, it’s fair to say that cash flow is top of mind for many.

 

Luckily, there are some strategies that you or your client can implement to accelerate cash flow.

Update or create a cash flow budget

It’s hard to take action on the cash flow front if you don’t have a sense of where your challenges are coming from. Consider your cash flow budget to be a ‘roadmap’ of your business’ inflows and outflows – everything from your expected sales to payroll obligations, and is a useful tool for helping you figure out where the gaps are.

Having an updated picture of the expenses going out and the money coming into your business for the next year, six months and even shorter timeframes if necessary — such as monthly or biweekly — will give you predictability around expected shortfalls. This can give you warning signs to forecast and adapt early, for example, to seasonal differences in cash flow or if your payment terms will start affecting your working capital. 

 

Ready for more cash flow management tips? Start by learning how to create your own cash flow budget.

 

If your business buys or sells inventory on account, you’ll also want to calculate your cash conversion cycle (CCC), which measures how long it takes to convert that inventory into cash. The variables impacting the length of your CCC — such as days payable outstanding — can hurt your cash flow. But you can take steps to shorten the cycle.

Look ahead at the supply side

If you have a good relationship with your suppliers, they may be able to extend options that allow you to alleviate your cash flow woes. This could include setting up electronic payments on a specific day of the invoicing cycle that aligns with your accounts receivable, or taking advantage of extended or flexible payment terms, if necessary.

On the flip side, some suppliers may be willing to give you a discount if you pay your invoice on day 10 instead of day 60, or a lower rate on bulk orders. Both of these will save you money in the long run and increase your business cash flow.

Keep your invoicing process on course

Once you’ve established a system for sending invoices promptly and following up on payments regularly, you can also help your customers stay on course for timely payment by ensuring that your invoice is structured properly.

Make sure your invoice contains terms (such as net 30 days), the full name and address of your business, and your tax number. Also ensure the charges are correct and that any backup documentation is attached. Finally, ensure you’ve received written proof the client received the invoice.

Consider factoring your invoices

If you find your invoices are still being paid at net 30, 60 or even 90 days, invoice factoring can accelerate your cash flow, so you can access the working capital you need, when you need. 

Factoring your invoices can help you or your client meet operational obligations and take advantage of opportunities to grow the business when they present themselves.

For small business owner Ray Bowman, Liquid Capital’s invoice factoring services allowed his tree clearing company to move past the cash crunch created when commercial clients took as long as 120 days to pay their invoices – enabling him to pay subcontractors on time and double his sales.

“For a small company, longer invoice payment terms are a real problem. I didn’t have the cash flow capabilities to take back-to-back commercial contracts, especially with subcontractors working for me.” – Ray Bowman, Owner and President, Rayzor Edge Tree Service

 

Find the right kind of customers

Making sure you’re doing business with creditworthy customers will not only give you a better chance of being paid promptly but may also help you secure financing when you need it in the future. To avoid falling into late payment traps, consider requiring credit checks or a minimum credit requirement for new customers.

If you or your client is experiencing a cash flow deficiency or noticing a disconnect between accounts payables and receivables, there are options for bridging the gap. Our Liquid Capital Principals are industry experts who are ready to help you or your clients overcome cash flow challenges.

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Want to learn more about accelerating your (or your client’s) cash flow and get customized cash flow management tips? Contact your Liquid Capital Principal to learn how we can help.

Invoice factoring for small business explained: How owners and financial decision-makers can increase their cash flows with more reliability.

Whether a company needs to raise working capital, accelerate business growth, hire new talent or buy new equipment, invoice factoring is a popular choice of funding. Organizations of all sizes seeking an alternative to bank loans can quite literally cash in with this strategy. When banks can’t unlock funding due to limited or poor credit history and other criteria that can’t be met, invoice factoring for small business can be particularly advantageous. 

If you work with the right invoice factoring company, your business can operate with less stress when dealing with slow-paying customers — and have access to the money you’ve already earned (aka, invoiced). 

However, you may be wondering, “How do I quickly assess different factoring companies and find the right one who will benefit my business the most?”

Questions you need to ask when selecting an invoice factoring company

When you begin your search for a factoring partner for yourself or your client, be sure to ask these quick questions:

• How long has the invoice factoring company been in business?
• What is their industry expertise?
• Do they offer funding options other than invoice factoring?
• Can you see some customer testimonials and case studies?
• How much will it cost me to factor with them? 
• How quickly does it take to get approved for invoice factoring?

Your answers should match your business needs and help you decide if the factoring company can get you the funds you need.

For a more in-depth guide, take a look at our free invoice factoring guidebook that features ten questions that will help you pick the right factoring partner for your company. 

 

Learn the critical questions you should ask any invoice factoring provider in the Invoice Factoring Guidebook

Access the complete guide.

 

 

Accelerate your cash flow in four simple steps

If you know invoice factoring is the right choice to accelerate your cash flow, here are four simple steps in the process to help you access capital:

 

Step 1: Do your invoice payment terms qualify for factoring?

If you have invoices that are due in the short term (for example, in 30, 60 or 90 days), these could be the right invoices for factoring. 

Selling them to a factoring company can provide you with immediate cash flow, as invoices with much longer terms may not always be eligible.  

Related: Is your cash flow suffering from 90 day payment terms? Invoice factoring can help

 

Step 2: Sign a factoring company agreement

Once you’ve selected a factoring company (also called the “factor”), you’ll sign an  agreement that marks the beginning of a formal business relationship.

The agreement will outline what account receivables (ARs) or invoices the factor is purchasing, along with other terms and conditions that will help fast-track future financing. 

If you’re referring a client to Liquid Capital, establishing a long-term partnership with your Liquid Capital Principal can open new doors for your business.

 

Step 3: Calculate how much working capital you need for your goals

Based on your immediate and long-term plans, you probably have an idea of how much capital you need flowing into the business.

When you meet with your factoring partner, come ready with that number. With invoice factoring, you can calculate how much working capital you’ll have access to once you factor your invoices. And your lending partner can also help you with these calculations.

Once you know exactly how much cash is being injected into your cash cycle, you can plan to move forward with business operations. For example, you can begin the process of buying inventory or hiring new employees for a busy season — knowing that you can now afford to make these strategic decisions.

 

Learn more the Ultimate Cash Cycle Guidebook

Access the complete guide.

 

 

Step 4: Plan the timelines to collect your reserve

Once the client has paid your factoring partner the outstanding invoice, the factoring company will be able to release the balance of the “reserve fund.” This final amount gives you additional working capital, which can be a welcome cash inflow. 

Work with your factoring partner to understand the timelines for collecting the final reserved funds, and you’ll have a better understanding of your inflows. You may plan for these reserves as ‘top-ups’ to buy additional goods or services, or to act as a buffer in the event of unexpected cash outflows. 

 

Related: See the definition of “reserve” here, plus other important factoring terms.

 

The right solution at the right time 

Invoice factoring has gained popularity in recent years because it offers a quick finance solution to all types of businesses, from all types of industries. (But by no means is it a new solution. Read here for some history.)

There are plenty of advantages to using invoice factoring, aside from the obvious need for working capital. But one of the most important benefits is that you’re not adding any more debt to your business. (If you’re ready to learn more, get a head-start and learn all the factoring terminology in our free Ultimate Factoring Encyclopedia.)

By working with a reputable factoring company, you’ll gain a business partner that provides financing when you need it — and also offers both financial analysis and genuine support that helps you scale your business.

 

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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.

 

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