If you’re in business, sooner or later, you’re probably going to have a cash shortage. It doesn’t matter if you’re the only person working in your business, or have a 100 employees working for you. You will have a cash shortage.
Experiencing a cash shortage isn’t necessarily a sign of poor planning. It doesn’t mean that your business is a failure. It just means that you, like any other business owner, can’t predict everything that will happen in the future.
The key to surviving a cash shortage for your business is to accept that it will happen and have a back-pocket plan to deal with it when it does. Here are some tips to help you survive when your cash flow won’t meet your expenses.
Negotiate with your suppliers
Pay no bill before its time. Review your payables and see if you can get extended terms from your suppliers. Especially if you’ve been good to them over time, suppliers often understand what you’re going through and will extend payment terms.
Offer customers incentives for early payments
Approach your best customers and offer them a discount if they pay your invoice early. It’s a win-win when your customer gets a break for good payment and you get faster access to cash.
Organize a business line of credit
Before you need it, preferably when business is good, organize a line of credit that you can draw upon during cash shortages. It’s a paradox that the best time to get funding from a bank is when you don’t need it.
Consider factoring your business’s accounts receivable invoices
When traditional financing isn’t an option, or you don’t want to go into debt, factoring your accounts receivable invoices can offer an ideal solution to cover your cash shortage.
Simply, factoring allows you to sell your accounts receivable invoices from creditworthy customers to a factoring company at a discount in exchange for immediate cash. Instead of waiting 30-60 days to receive cash, you get up to 95% of your invoice amount, usually within 24 hours of issuing the invoice. Once the customer pays the factoring company, the balance is paid to you, minus the factoring fee. You don’t have to repay the cash advanced to you, so you can use it immediately without worrying.
Plus, because qualification is based on the creditworthiness of your customers (not yours), you can still qualify for factoring even if traditional lenders have turned you down.
For more information about factoring to help your business survive a cash shortage, contact Eric Grossman.
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