Written by: Shiv Nanda
Just the way consistent cash flow keeps a small business running successfully and sailing smoothly, lack of cash flow can sink the same small business in no time. Even if your company is profitable right now, if your business model is unable to manage the flow of cash down the line, your brilliant entrepreneurial skills will not be able to save your business from potential problems.Common cash flow issues can range from failure to pay employees on time, inability to take advantage of a profitable opportunity due to lack of funds and negative cash flow, disorganized books, insurmountable debt, and insufficient profits. Fortunately, there are several feasible financing solutions to future-proof your small business against unforeseen financial challenges.
Quick Funding Solutions for Your Immediate Business Needs:
Personal Loan If you have a cash flow issue that needs to be resolved at the earliest, then a personal loan is the fastest fix. This short-term financing solution is your best bet if you are not expecting any big revenue payment within a few business days because the approval is pretty much faster, disbursal is quick and the overall closing cost is lower than most unsecured credit alternatives.
Small Business Line of Credit: A small business line of credit works just like a credit card where you only pay interest on the amount used and not on the entire credit limit extended to you. Also, the best part of a small business line of credit is that when you repay the outstanding balance, the amount of available credit is recharged by the same amount and the money becomes available for you to borrow again in foreseeable future without having to reapply.
A small business line of credit acts as a cushion when you need quick cash for unexpected expenses. Also, since the entire process can be completed online, all the stressful paperwork gets eliminated and you generally don’t need much documentation beyond your address proof, pan card, aadhaar card and professional email.
Credit Cards This is the best way to get instant cash on demand with zero collateral! If you opt for a regular credit card, you can withdraw almost 40% of your credit limit as cash. One exception is the MoneyTap Credit Card 2.0 that allows 100% cash withdrawal. You can also convert your credit card spend into convenient EMIs online and track all your repayments in real-time.Related: 3 Tips to Eliminate Credit Card Debt
Other Non-Financial Solutions for Cash Flow Issues:
These solutions meet very specific business needs so you can use them if they match your business requirements and individual needs.
Negotiate Terms with Trade Partners If cash flow is a constant struggle for your small business, then you need to bring about a permanent change to boost your bottom line. Review the credit terms your trade partners have set and see if they are in sync with your payment terms for clients. Renegotiate favorable credit terms with your suppliers so you have a convenient payment schedule that lets you hold on to cash for longer.
Open Up Different Payment Avenues for Customers If you give your clients the option to pay online, they may clear your invoice immediately and this will help your cash flow. Integrating a cloud-based invoicing system will surely get your clients to pay you more quickly. Since every business has a different revenue cycle, you should also allow your clients to choose a payment day that works for them and this will improve your ability to predict cash flow.
Review Your Product Pricing In order to stay competitive, small businesses often sell their offerings at very low prices; inviting cash flow issues. To avoid this problem, you need to review all your offerings to determine an all-inclusive cost and if it is possible, raise the pricing of products that have a relatively weaker margin.Related: The Dirty Little Secret of Free Credit Scores
Track Your Invoicing Process A slow invoicing process is a common cause for cash flow issues and being a small business, you are required to offer a payment term of at least 30 to 60 days even if you can’t afford to wait. One way to resolve this issue is to reward your clients for early payments. You can also set up an auto-billing system for your repeat customers and give discounts on early payments.
While some cash flow issues can be avoided with a smart invoicing system, the others may require immediate access to capital. In that case, a personal loan or a line of credit proves to be a reliable and feasible solution. The online application process is hassle-free, funding is much faster and the repayment terms are also flexible enough to allow your business the freedom to grow.Shiv Nanda is a financial analyst who currently lives in Bangalore and works with MoneyTap, India’s first app-based credit-line.
Shiv eats, breathes and sleeps finance, to the dismay of friends who’ve endured unsolicited advice on their investment choices, budgeting skills, or lack thereof. Luckily for them, Shiv has diverted this energy toward writing about various financial topics online. He loves it when people actually ask him for advice, so email him your questions at [email protected] He’ll try not to get carried away with the answers!