The phrase cash flow problems generally refers to money not being available for use when your business needs it. Cash flow problems can range from not being able to make payroll on time to not having the necessary cash to take advantage of a growth opportunity. You can typically fix your cash flow through a combination of financing and non-financing solutions.
Financing Solutions to Cash Flow Problems
If you have an immediate cash flow problem, then the quickest fix might be a short-term financing solution. It’s the fastest way to get money in your bank account if you don’t plan on receiving any large revenue payments within the next day.
There are 9 main ways to solve business cash flow problems, starting with 4 financing solutions for immediate needs.
1. Short-Term Business Loans
Short term loans are relatively easy to get approved for and can be funded in as little as 1 business day. These loans typically have a higher interest rate (APR), however, the total cost of capital can be less expensive than longer-term options with a lower APR. If you’re looking to obtain a short-term loan quickly, OnDeck Capital business loans may be a good fit.
With OnDeck, you can generally qualify if your personal credit score is above 500, you’ve been in business for at least 12 months, and have at least $100K in annual business revenue. This short-term loan is a good fit for businesses that need money immediately and are willing to pay it back in 3 – 36 months.
You can apply for an OnDeck loan online. The process is easy, and you can get approved with 10 minutes. OnDeck will connect with your business’ bank account or accounting software to make the process seamless. You generally do not need to provide any additional documentation beyond your basic personal and business information.
OnDeck Short Term Business Loan at a Glance
|Loan Amount||$5,000 - $500,000|
|Time to Receive Funds||As quick as 1 business day|
|Time in Business||12 Months|
|Minimum Annual Revenue||$100,000+|
|Minimum Credit Score||500+ (Check your score for free here)|
|Typical APR||30% - 50%|
|Repayment Period||3 - 36 Months|
|Get Started||Visit www.Ondeck.com|
2. Small Business Line of Credit
A small business line of credit works similarly to a credit card. You only pay interest on your current outstanding balance, not on the total credit line extended to you. When you pay down your balance, the amount of available credit increases and becomes available to borrow again in the future.
A business line of credit might be a better option than a short-term loan if you do not need access to a large amount of cash right away but may need that cushion in the foreseeable future.
OnDeck offers a flexible business line of credit up to $100K. The line must be paid in full within 6 months of your last draw. This means the monthly payments are like a 6-month loan, but you can borrow less at any one time because it is a revolving credit line. You must have a 600+ credit score, be in business for at least 12 months, and have $100K+ in annual revenue to qualify.
As with OnDeck’s short-term business loan, you can apply online and receive approval within a matter of minutes. You generally don’t need to provide any additional documentation beyond basic personal and business information.
OnDeck Business Line of Credit at a Glance
|Maximum Loan Amount||Up to $100,000|
|Time to Receive Funds||As quickly as 1 business day|
|Time in Business||12 Months|
|Annual Business Revenue||$100,000+|
|Credit Score||600+ (Check your score for free here)|
|APR||13.99% - 39.9%|
|Repayment Period||Up to 6 months|
|Get Started||Visit www.Ondeck.com|
3. Establish Favorable Credit Terms with Trade Partners & Suppliers
Another option that might help your cash flow is to negotiate new or better payment terms with your trade partners. Extending the time you have to pay a partner from due on receipt to due in 30 – 90 days will allow you to hold on to more cash for a longer time.
You could look at getting new, or extended, payment terms. Suppliers you have a good payment history with could be open to providing you with payment terms. If you have trade partners currently with 30-day terms and have been consistent about paying them on time, consider negotiating a 60 or 90-day payment schedule.
Extending your terms frees up cash now that would otherwise be going to pay your trade partners. This is like a line of credit from your suppliers because you’re receiving goods or services right away and paying them later. This arrangement will free up your capital, but may also be reported on a business credit report like Dun & Bradstreet.
4. Other Financing Cash Flow Solutions
Some trade partner payments will require you to pay with cash. Using your credit cards or available credit line to make other payments can keep a maximum amount of cash in your business for when it is needed. Using your available credit can stretch your cash and keep you paying all of your bills on time.
Other cash flow solutions are also available if you have specific needs, or meet very specific qualifications. We do not cover them with an in-depth analysis here, but we have written about them before, and you should check them out if you think they might match your financial needs.
Invoice factoring advances you money on your unpaid invoices owed by B2B or B2G clients. Essentially you pay a small fee for early access to revenue you’re going to receive from your own customers anyway, but you don’t have to wait the 30-90 days you normally do.
If you’re looking to finance less than $50K in invoices consider accounts receivable financing (AR financing). This is similar to factoring in that the financing is based on unpaid invoices, however, it works more like a line of credit and is generally more flexible.
Inventory financing is used to finance inventory purchases. It’s a good fit to ramp up for a busy season or to buy inventory to fulfill an order before you’re paid for your past work.
Purchase Order Financing
PO financing is an advance that pays your suppliers directly for goods that will help you complete a written purchase order. PO financing can fund 100% of the costs to supply your purchase orders, which includes delivery.
Refinance & Consolidate
Cash flow problems are often the result of costly debt payments. You can refinance a bad business loan, or you can consolidate all of your debts into a single monthly payment that can save you money. Consolidating can also save you time and money currently spent on managing a complicated cash flow management process.
So to summarize, here’s a look at the four financing solutions:
Non-Financing Cash Flow Solutions
If you do not qualify for a loan or don’t want to take on additional debt at this time, then using non-financing solutions to cash flow problems may be a good option for you. These methods can either help your business free up cash that’s currently tied up in expenses or help you receive cash from your clients faster.
“Borrowing can be a solution for certain cash flow problems, but there are times when borrowing can actually make cash flow problems worse. Before borrowing, it is a good idea to examine how your business is doing and whether a new debt payment will really help your cash flow situation long term.”
— Ty Kiisel, Editor at OnDeck
All five of these solutions improves your overall cash flow management and sets you up to solve cash flow problems before they occur in the future.
5. Re-Negotiate Supplier Contracts
If you’re constantly struggling with keeping your head above water, then you need a permanent change that will increase your disposable cash. This is especially true if you find that adding revenue doesn’t seem to increase your bottom line. One of the problems might be how much you’re paying your suppliers.
“One of the first things to consider is the gross profit margin. If the margin is too low, it might be time to re- negotiate cost of goods sold with vendors.”
— Paola Garcia, Business Advisor at Excelsior Growth Fund
Your gross profit moving a point could mean a substantial increase in disposable income. This isn’t a solution that you’ll be able to benefit from immediately, but you can start to feel the impact of it within 30 days.
6. Improve Your Invoicing Processes
If you’re not currently using your accounting system to invoice your clients, then you should consider doing so. Additionally, if you’re not automating your invoicing system, you should start. Automating your invoicing can:
- Reduce costly invoicing errors and delays
- Get invoices to your clients faster
- Gives you data on who’s paying on time and who’s paying late
- Makes it easier to collect overdue invoices
You can send your invoices online through your accounting software to speed up the payment process. Most small businesses use Quickbooks to track their accounting, which can be used to send invoices directly.
If setting up automated invoicing seems complicated, don’t worry! We have a free step-by-step course on how to set this up through Quickbooks. If you don’t currently use invoicing software, Square has a free option for you and our article describes how to set it up.
7. Incentivize Your Clients to Pay Faster
Every small business owner with cash flow problems should ask themselves what they can do to make it easier for their clients to pay faster. Providing a method or a reason for your clients to pay you faster can improve your immediate cash flow needs. There are many ways to do this, and you can get creative based on your business’s circumstances.
Set Up Auto Billing
Signing your clients up for an auto-billing cycle where the money is either drafted directly from their bank account or charged to a credit card on the same day each month will help you know exactly when the cash is going to hit your bank account. This knowledge can help you better plan how to spend that cash.
“For our repeat customers, we invoice them once a month and the invoice terms are ‘due upon receipt’ which encourages people to pay faster. We also offer to accept direct deposits from our clients so that way the money goes directly into our bank account. This saves us from waiting for a check in the mail and having to go to the bank and depositing them all the time. We get paid 3 – 10 days faster this way.”
— Ben Walker, the CEO of Transcription Outsourcing
Accept Online Payments
Paying a bill online with a credit card is super convenient for your clients. If your clients had the opportunity to pay online, then they may be more willing to pay the invoice immediately upon receiving it.
Rich Patterson, the owner of Patterson Brands, said this about how receiving payments online has helped the cash flow of his business:
“We integrated our cloud-based invoice/accounting system with a credit card transactor. Now we find clients paying invoices immediately when we issue the invoice — even before they have received their shipment. Now our payables are down from an average of 40 days to 10 days.”
Keep in mind that accepting credit card payments can come with transaction charges. Whether you choose to pass those along to your customer or not, getting them to pay more quickly will help your cash flow.
Encourage Early Payment and Discourage Late Payment
Most people are cost-conscious. Your clients could be happy to pay more quickly if it means they are going to get a better deal or discount.
”You can use discounts or lower deposits to encourage customers to pay early. You can also charge penalties or interest for late payments. Encouraging your customers to pay early adds more cash to your company.”
— Russab Ali, Founder of SMC Digital Marketing
Using the right combination of carrots and sticks to ensure your business gets paid on time is an easy solution to cash flow problems that doesn’t require financing.
Let Your Clients Choose Their Payment Day
Every business has different revenue cycles. It may be beneficial to some of your clients to pay you in the middle of the month, while others would prefer the beginning of the month. Allowing them to choose the day that works best for them will incentivize them to pay you on time. This increases your ability to accurately predict what your cash flow will be.
8. Stretch Out Your Payables
Stretching out your payables usually means choosing to pay certain bills past their due date. While this can help with short-term working capital, it is not a long-term solution and can damage relationships with trade partners and hurt your credit. If you choose to stretch out your payables, then there are multiple ways to do this while still preserving important vendor relationships.
If your business has too many payments due at a particular part of the month, which is draining your cash, then consider negotiating a different due date throughout the month with some of these trade partners. Many vendors will be happy to change your payment date if they feel confident in your ability to pay on time.
Change Payment Agreement
Many payments are due once per month, but some service providers will allow you to pay semi-annually or annually. An annual subscription might be cheaper as some service providers will give discounts for paying this way.
Also by paying only once per year, you do not have ongoing monthly payments to fit into your budget, which eliminates one more payable that you will not have to try and juggle every month.
9. Reduce Expenses
Reducing expenses is a common approach to trying to fix a cash flow problem. However, it’s easy to go about this the wrong way by cutting big-dollar expenses that hurt your ability to generate revenue.
There are other expense-reducing measures that should be taken first to both maximize the amount of cash flow the company receives without hurting the business operations, and to minimize the time it takes to receive the money.
Cut the Fat
Get rid of non-essential expenses. If you have landscaping or pest control for your office, then this would be the time to suspend those services. Anything that is not essential to business operations should be cut before necessities like inventory, marketing, or labor. Often times the vendors you cut will offer discounts to earn back your business later, when you can afford them again.
Jennifer Aube, owner of DoYouBake, knows a thing or two about eliminating the fat in her own small business. Her advice is:
“Be savvy about where you are spending your money and cut out any expenses that are not necessary. For instance, reduce your labor costs by doing it yourself, or set up shop from home unless you need a location for product production. Building a business takes making smart cash flow decisions each day.”
There are even ways to cut the fat from services you’ll continue to need for operations. Services like phones and internet can provide cost-saving opportunities. If you are not tied to a contract then you can shop around to see if there are cheaper options out there for the same service with other providers.
To summarize, here’s a brief look at your best non-financing solutions:
There are many ways to solve your cash flow problems. Some cash flow solutions involve being smarter about invoicing and getting your customers to pay quicker, while others involve finding ways to cut expenses. Each solution can help your overall cash flow management, and improve your ability to accurately predict how much cash you’ll have on hand at any given time.