What is cash flow?
Cash flow is the amount of money that moves in and out of a business. The money coming in is earned by the products or services sold. The process includes the collection of accounts receivables from customers that did not pay at the time of service. Cash that flows out of the business includes payments for equipment, raw materials, employee salaries and other operating expenses.
Why is cash flow important?
When there is more money coming in than going out, this is positive cash flow. Having positive cash flow is important for businesses to run smoothly, and although it is not always controllable, there are ways to refine your cash management processes and use alternative financing solutions to improve cash flow. However, even if your business is generating more revenue than it is spending, there could be a shortage of cash flow due to:
- Timing of when you receive the cash from your revenue and when you actually need it. This can be the result of:
- Growth of your business; your business is growing faster than your cash can support.
- Your customers take advantage of the payment terms you provide to them thus extending the time between when you provide the goods or services and when they decide to pay you.
These important factors can truly impact your business in a meaningful way!
Manage cash flow more efficiently by refining your cash management processes
There are many cash flow management techniques that can help you increase the amount of money available for your business at any given point in time. By following these practices, you can improve your company’s cash flow, ensuring that you have the cash-on-hand needed to grow your business or pay expenses.
- Collect receivables quickly – If you collect your invoices in a timely manner, you will have cash available for necessary business expenses. Getting paid faster could also facilitate opportunities to invest in new equipment or growth initiatives, improving your business’s bottom line.
- Encourage customers to pay faster – if your customers generally wait longer than 30 days to pay their invoices, you can encourage them to pay faster by offering discounts or incentives. You could also charge late fees if customers pay later than the due date.
- Manage your inventory – effective planning and organization can help you keep track of inventory so that you only produce what is necessary and don’t tie up your company’s cash in supplies and products that aren’t being sold or used. This includes work-in-process and raw materials.
- Use software to monitor your cash flow – you may have a designated person to monitor your cash flow, but it might also be beneficial to invest in cash management software to automate invoice collection and payment processes and make more effective financial decisions with forecasting.
Increase cash flow with alternative financing solutions
If you are actively taking the steps above but are still suffering from slow paying customers or seasonal business fluctuations, here are some additional solutions that can help you improve cash flow.
- Factor your invoices – invoice factoring, also known as accounts receivable financing, can be an immediate solution to improving your cash flow. Once you issue an invoice, the accounts receivable financing company pays you directly and then collects from your customer. This gives you immediate access to cash, and you don’t have the hassle of following up with slow-paying customers.
- Refinance existing equipment loans – Existing equipment loans can be refinanced, often with monthly payments lower than the original payments. If you already have equity built into the equipment, some finance companies can leverage the equipment to secure a new loan with more attractive terms, therefore lowering monthly payments and increasing cash flow.
- Consolidate existing loans into one under the same lender – debt consolidation loans can help you manage your money more efficiently by reducing the number of lenders with whom you are working and potentially lower your monthly payments. Reducing debt and the monthly payments associated with that debt can give you that extra cash to spend on growth initiatives and other necessities for your business.
Where do I go to improve my cash flow?
If you are looking to factor your invoices, refinance your existing equipment or consolidate debt to increase cash flow, you may think you have many service provider options. However, not all lenders are alike. At Commercial Funding Inc., we work hard to get you your money fast, and we deliver exceptional customer service along the way. Plus, our affiliate, Commercial Credit Group Inc. can assist with equipment financing, refinancing and debt consolidation.