4 Tips to Combat Cash Flow Shortages Before They Become a Problem

Conceptual shot of business man with empty pockets in tough economic timesIf you are like most businesses, there comes a time when your cash flow gets clogged. Whether it be from a slow business in off seasons or with fast growth, it is almost inevitable that you’ll run into cash flow shortages. Unfortunately, many business owners don’t know how and when to save their business in times of poor cash flow. To help you better understand what you can do in this circumstance, we have compiled 5 tips to tackle cash flow problems before they tackle your business.

4 Tips to Combat Cash Flow Problems

1. Utilize Non-Recourse Invoice Factoring

Non-recourse invoice factoring is a great financial tool that will help your business build a strong source of capital without incurring any additional debt. Non-recourse Invoice factoring is a form of financing where a factoring company will purchase your outstanding invoices or receivables to advance you up to 96% of its amount with low rates and quick turnaround. This allows you to get paid immediately for your services, rather than waiting up to 30 days for your invoices to be paid and processes. With this, you will be able to secure a strong source of working capital for your business – even during slow times. With non-recourse factoring, you will not be responsible for repayment to the factoring company if your clients fail to complete payment of their invoices. If your client neglects to pay, the factoring company takes on that cost, keeping your working capital and your credit safe.

2. Put Money Aside

No matter if you utilize non-recourse invoice factoring or not, it is crucial to start putting money aside. It’s tempting to spend money when you see high numbers in your account, but you have to start considering those rainy days ahead. It is important that when you make sales to pay your business before you spend money on it. A good rule of thumb is to pay your business 5 -10% of each invoice into a savings account. This way, you won’t ever see that money in your account – taking away any temptations.

3. Plan for Expenses

Although many business expenses happen unplanned, it is important to try and plan as far in advance as possible for the expenses you do know about. If your business has seasonality, this is especially important. By purchasing equipment or inventory before you enter your slow period, this will help you avoid major costs while you are in it. Another expense that can make or break you in slow periods is with technology. If your business relies on systems or technology for its everyday productivity, ensure that you keep an eye on them. If you were to have a system crash, and you are low on funds, your business can suffer tremendously.

4. Increase Product/Service Prices

One thing that many business owners do too frequently is increase prices. This shouldn’t be something that is always changing. Frequently fluctuating prices can confuse and even frustrate your customers, leaving them to look elsewhere for similar business. Keeping your prices consistent will save your business’s reputation in the long run. Although you shouldn’t frequently change your prices, it is important to assess them frequently. If your business is barely making a profit, it’s time to make an adjustment. It is crucial to find a balance between a pleasant profit margin and pushing customers away from expensive pricing.

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About the Author:

Robert Bernfeld started in the commercial finance industry in 1974. His early years included positions with Aetna Business Credit and Foothill Group. During the next thirty five years. Mr. Bernfeld established both equipment leasing and accounts receivable factoring companies. He partnered in founding Business Facilitators, Inc. in 1999. Mr Bernfeld graduated from the University of California, Riverside in 1974 and received his Juris Doctorate from Loyola University School of Law in 1977.

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