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Small Business Advice & Solutions

Financing and Non-financing solutions for cash flow problems

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Whatever phase your business is in, it’s easy to run into cash flow challenges. A new calendar year can be a tough time for many small businesses – Christmas and the summer school holidays often herald slow sales and late payments for SMEs outside the retail, travel and hospitality sectors.

Additionally, many of us have big plans for our businesses in a new year. Perhaps you’re looking to upgrade your equipment, refurbish your office or hire more staff.

Whether you need additional capital to invest in your business or lower-than-expected income is causing you cash flow woes, there are plenty of financing and non-financing solutions that will allow you to smooth your cash flow and keep your business thriving.

Financing solutions for cash flow problems

A financing solution is the fastest way to access cash if you’re facing cash flow problems. There are many different funding options, each with its own advantages and disadvantages:

  • Unsecured business loan

An unsecured business loan is a short-term facility that allows you to access funds that can be used for any business-related expenses. No security is required, which means that interest rates for this type of funding are usually quite high. Most unsecured business loans must be repaid within 12 months, so they’re not a great option if your cash flow challenges are likely to be longer term.

  • Line of credit

A business line of credit works in a similar way to a credit card – you can use it to pay for any business expenses at any time. You can access funds up to a certain limit and will only pay for the amount of money you use, making it a good option for cash flow emergencies. You’ll only pay interest on the amount of money that you use, however most lenders charge fees regardless of whether you actually use your line of credit.

  • Invoice finance

Sometimes called debtor finance, an invoice finance facility allows you to access funding using your accounts receivable ledger as collateral. This money can be used for any business-related expenses and can be accessed as soon as your client invoices are sent. It’s simple to apply, and you can use your invoice finance facility when it suits you, so it’s great for covering unexpected cash shortages.

  • Personal loan

Many SMEs use personal loans to access funds for their businesses, however this solution carries personal risk as you – not the business – are responsible for repayments. Interest rates for personal loan products are also usually quite high.

Non-financing solutions for cash flow problems

If you’d rather not take on additional debt, there are a number of changes you can make to your business operations that will allow you to reduce your costs and encourage customers to pay you faster. Even if you do opt for a funding solution to address your current cash flow challenge, these changes are worth considering as they speak to good business practice:

  • Improve your debt collection process

Ensuring you have an established debt collection process – and sticking to it – is a great way to reduce the likelihood of repeat late payers putting a dent in your cash reserves. Your debt collection process should start on the day payment becomes overdue to show your customers you’re serious about on-time payment. Consider charging a late payment fee to frequent offenders, and ensure you have a relationship with a debt collection agency that you trust in the event you need to escalate an unpaid invoice.

  • Tighten up inventory management

Taking a more strategic approach to inventory management can have a significant impact on your cash flow. If you’re not monitoring your inventory levels and doing regular stocktakes, there’s no way to know exactly how much of your cash is tied up in product that’s sitting on your factory floor. You may also be paying for storage space to hold stock that you don’t need for another three or six months.

  • Automate your invoicing

An automated invoicing system can help you to get paid faster. Software such as Xero, MYOB or QuickBooks allows you or a bookkeeper to email invoices quickly and easily, send an automated reminder on the due date if an invoice is unpaid, and access detailed reporting on on-time and late payers. You may even be able to include a link to support secure credit card payment on your invoice template, allowing your customers to make payment as soon as they open your email.

  • Reduce your expenses

When did you last seriously examine your expenses? If cash flow is an ongoing challenge in your business, consider cutting back on non-essential spending. Ask your cleaner to come fortnightly rather than weekly, defer pest control contractors for six months, and crack down on unnecessary spending on credit cards. It’s also quick and easy to use a comparison website like Canstar or iSelect to check you’re receiving the best rates for services like gas, electricity, phone and internet.

If you’re interested in learning more about invoice finance and whether it could be the right funding solution for you, Cashflow Finance offers a free 30-minute consultation to understand your business and suggest appropriate funding options. Call us today on 1300 760 205.