Every business owner dreams of a time when they’ll finally be able to focus all their efforts on their customers and on growing their business. However, something always seems to get in the way. Equipment breaks down, suppliers go under, sales drop unexpectedly, and invoices don’t get paid on time. These interrupt your business’ cash flow, and can quickly lead to other, even more serious problems. Before you know it, a financial problem can lead to personnel disruptions, a decline in product quality, client retention issues, and eventually bankruptcy.

improving cash flow - The secret to stable cash flow for SMEs

Getting control of your business’ finances, and developing a plan for dealing with inevitable disruptions, is a critical skill for any business owner. For small businesses, the key to doing that is understanding what tools are available to you, and knowing when and how to apply them.

Preventive tools

The best kind of cash flow problem is the one that never materialises in the first place. To help with that, there are a few preventive measures that businesses can use to protect themselves before anything even goes wrong.

Financed payment plans

The simplest and most foolproof way to stabilise revenues is to ensure that you’re not forced to spend weeks or months chasing down clients for payments. A great way to do that is to use a financial institution like Fifo Capital to offer financing to your clients. In this type of arrangement, you’d be paid the full sum up front, while your client can make more affordable payments on the purchase to the institution. That means you don’t have to worry about long-drawn out payment collection at all, and you can get your hands on the funds you need sooner and more reliably than you would if you handled it on your own.

Proper contracts

All great business relationships rely on well-written contracts, and these become doubly important when it comes to ensuring full and timely payment. Fortunately, making this happen isn’t necessarily as difficult as new business owners often seem to think. Practically no client is going to deliberatly enter an arrangement with you in bad faith, and you should expect that they intend to treat you fairly.

At the beginning of a relationship, clients will generally be happy to sign a fair and well-written contract, and won’t try to manufacture loopholes into it. The trick is ensuring that you didn’t include them on accident, which becomes an issue when a client runs into their own cash flow problems, and starts looking for options to protect their own interests. Because of this, it’s important to always work with a legal professional when writing contracts, no exceptions.

Reactive tools

Of course, cash flow problems aren’t just the result of late payments. Any number of things can go wrong, and after they do what they can to minimise the occurrence of cash flow problems, businesses need to make sure that they can quickly resolve those issues that can’t be prevented.

Short term invoice financing

Traditionally invoice financing is a relatively long term arrangement where a business generally stabilises their revenues by financing all of their invoices. However, short term invoice financing, where a business only finances one or a few invoices, can function like a short-term loan. In effect, you can give your business a quick advance on an outstanding invoice on a purely situational basis, instead of as a tool to stabilise income overall.

Stock loans

Stock loans are a unique type of secured loan, in that you don’t need to leverage an asset to secure it. Instead, the loan is secured against the stock you buy with it. This allows businesses that are fully leveraged to get access to the funds they need to keep their doors open and their shelves stocked. While this type of loan certainly occupies a relatively specific niche, it can be an invaluable tool for dealing with a budget shortfall.

Secured business loans

A secured business loan is a good general solution to help deal with unexpected costs, to fund growth, or to manage any kind of budget shortfall. It can be secured by many different kinds of assets, making it a very flexible solution that can be applied in situations where invoice financing or stock loans might not be sufficient or appropriate.

Successful business owners work first to reduce the incidence of cash flow interruptions, and secondly ensure that they have the tools they need to rapidly deal with those that do occur. This allows them to spend more time and energy focusing on their business, and less on worrying about whether next month’s billing cycle could drive their enterprise off the rails. If you’d like to learn more about these and other cash flow solutions, give us a call today!

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