In the long haul, liberal cash flow, equity and debt financing can be the best sources for acquiring working capital. All or some of these options, however, may not always be available for every business. In those instances, there are other methods available to business owners in order to maintain proper cash-flow management. Successful business owner, entrepreneur and philanthropist Ann Puig from Costa Rica shares some of the best methods to help ensure the cash is always ready to flow.
Organizations whose products or services require a significant amount of cash or effort before the transaction can be realized are perfect candidates for requesting a deposit or milestone payment. While some clients may be reluctant to make these types of payments, incorporating them into the company’s policies will make it standard practice and ease the payment process.
Another alternative for overseeing income is to inspire clients to pay quicker, which can be accomplished through different methods. “Offer your customers a discount if they make payments sooner,” explains Puig. “For example, tell them they will receive a 2% discount if they pay their invoice within ten days. This can be an alluring suggestion for any company, as it offers, over the long term, substantial savings.”
Vendors have a lot of incentive in helping their customers make purchases. An additional two weeks can make the difference between paying employees on time or expanding so, where possible, ask for payment extensions. If the payment terms are 15 days, for example, try to push them out to 30 days. Not all vendors will be amenable to the request, but some certainly will.
At the point when money is tight, everything ought to be on the table. This is particularly valid for idle equipment that can be sold for money or rented to another organization that can use it. Regardless of whether the organization is actively using the hardware, it might be possible to lease it to another operation and rent equipment that doesn’t impact the bottom line as much.
One extremely viable strategy for any almost any consumer business is a merchant cash advance. Explains Puig, “This option will provide the business with a loan that is automatically repaid through a portion of the debit and credit card transaction volume. If the business has a very strong transaction history, this can be an option that is very easy to obtain.”
Needless to say, one of the best ways to give the company more cash is to increase its margins. This may not always be possible, but should be considered, especially for a high-demand product or service. Increasing the margin, either by raising prices or decreasing costs, will free up funds, but might also cause friction with some clients, so consider this option carefully before moving forward.
Invoice factoring, or invoice selling or discounting, is an efficient and flexible method available to business-to-business companies that are seeking funding. Invoices are considered to be company assets – the product or service has been delivered, but the funds aren’t available until the invoice is paid. Since terms can sometimes be up to 60 days, receiving certain payments may take a while. A company can offer to sell the invoice to a factoring company in order to receive immediate payment. Then, when the invoice is finally paid, the factoring company receives the funds.
“All or some of these techniques may be viable solutions for your business,” asserts Puig, “but it’s important to consider each one carefully before making any decision. By understanding which is better for your particular situation, you can better manage your capital in order to grow the business.”