We’ve all heard the term, “Cash is King.” It’s always an acceptable method of payment for any transaction. Whether you are paying for a service in your home or paying one of your business’ suppliers to complete a sale, understanding your business’ cash flow cycle is essential to successfully operating your business and securing necessary financing. Cash flow is key to providing a snapshot of the condition of your business.
Whether you are a service provider, distributor, or manufacturer, managing your company’s cash flow process is all about timing. It is dependent on the amount and timing of your Accounts Receivable and Accounts Payable. From the point of ordering inventory, raw materials or components, or sending your employees into the field for service, knowing how long it takes for the sale of goods or services to be converted to cash is critical for all businesses. If your cash flow model shows a gap, you must evaluate how to reduce the gap. Can you negotiate with your vendors to increase payment terms? Make changes to your purchasing patterns by stocking just enough inventory to meet anticipated sales? What about improving collection efforts through better record keeping or a more aggressive collection process?
Nearly every company at some point in time has a need for funding and contrary to popular belief, it’s not always when a business is struggling. Businesses experiencing fast growth often have a need for cash. If you have exhausted all immediate solutions, it may be time to consider a cash injection or obtain financing from a lender to bridge the gap to positive cash flow. Once you have determined that your business needs financing, the bank is typically the first place you go. In order to give your business the best chance at being approved for a loan, it is imperative that you are able to articulate your business’ cash flow cycle. Banks look at cash flow as one of the major factors in the loan approval process. If you don’t have consistent cash flow, you will often need to pursue other options.
However, if your business has been turned down by the bank due to insufficient cash flows, what other options do you have?
If you have collateral, such as accounts receivable or inventory, you could have an option that may not be familiar to you. One product worth investigating is AR Financing. An Asset Based Lender (“ABL”), like Virginia Commercial Finance, has several products that can give you the cash you need.
The value of the short assets in your business may allow you to take advantage of opportunities that you would otherwise miss out on. An ABL firm closes the deal when a bank is not able to due to the regulated environment and credit guidelines in which banks must operate. ABL firms work closely with you to determine your real needs. Your loan will provide you only what you need and only when you need it. Collateral is often the answer when your business’ cash flow is interrupted. Learn how you can borrow against it by talking to an ABL firm or asking your traditional bank for a referral if you are turned do