6 WAYS TO INCREASE CASH FLOW
It’s been a couple months since many states and cities were ordered to shelter-in-place. Businesses all over the country are experiencing monumental changes in their day-to-day operations. As the operators that are able to stay open find new ways to conduct business, many may be experiencing a drastic change in cash flow. Some companies may be lucky enough to receive PPP or SBA disaster relief funding. Some, however, may still be in need of cash flow solutions. Here are 6 ways to improve cash flow through the use of financial, or alternative financial services.
1. Consider factoring
Factoring is when you sell your accounts receivable to a factoring company for a slight discount and then let them take care of the collection of that invoice. A short example using round numbers: You sell an invoice worth $5,000 for something that has already been shipped or completed and the factoring company gives you $4,500 immediately. The factor then collects the $5,000 owed on the invoice, forwards you $400 and keeps the remaining $100 as a fee. Not only do you get money immediately, the factoring company does the collecting.
2. Equipment loans
You can procure loans specifically for equipment, or you can get a term loan secured by the equipment you already own. This is a viable option for companies that cannot get a loan from a bank or that may have less than stellar credit.
3. Asset-based loans
You may be able to secure a line of credit with your accounts receivable, your inventory or the equipment you own. In a nutshell, you complete a Borrowing Base Certificate on a monthly basis that shows the value of all your assets. You are then permitted to borrow up to 80 or 90% of your outstanding accounts receivable and maybe more against your inventory and equipment.
5. Establish a line of credit
Lines of credit are quicker and a lot more convenient than short-term loans. You can shop around to get the best rate and once you’ve found the rate you’re happy with, you can use your line of credit to cover emergency purchases and smooth your cash flow. When you don’t need it, just keep it paid off.
6. Renegotiate fixed debt
See if you can negotiate a deduction on an interest rate. If that does not work, try extending the term of your loan. This will create smaller payments and more cash on hand.
7. Get a high-interest savings account
When your cash flow is low, you aren’t thinking about a high yield savings account. Surprisingly it may be worth it in the long run to set one up to get a stable cash flow established. While it’s not a good idea to make this a single focus of cash flow improvement, it’s a viable option to add to your portfolio. Your money in the bank might as well be working for you, right?
As we wait for the country and the economy to open back up, let’s keep up the entrepreneurial spirit! Share resources and ideas. Think about how to make your business pandemic proof, or even recession proof. Keeping cash flow strong and stable is not out of reach. Try our recommended ideas and see which ones are right for your business.