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How to Take Charge of your Cash Flow

cash flow

How to Take Charge of your Cash Flow

Small business owners in nearly every industry struggle with cash flow and how to best utilize their working capital. Nearly 60% of failed businesses cite cash-flow issues as a primary reason for their failure, which shows how cash flow management can make or break your business.

Here are 4 ways you can set your business up for cash flow success:

Better manage your inventory costs

Inventory can significantly sway your ability to stay on top of your cash flow because there are so many moving pieces to consider: Whether your business benefits from keeping inventory long-term or selling goods quickly, how much it costs to store and how much you can save by buying in larger quantities, are just a few considerations.

Regardless of the best inventory management strategy for your business, it is critical to keep a line of credit on hand to take advantage of the best deals from a vendor or ship items out quickly to maximize customer satisfaction.

Negotiate payment dates with your inventory suppliers to align with your known cash-ins and outs so you know you will have cash on hand to make your payments on time.

Get paid faster

Late payments from customers can really hurt your ability to manage your business, yet they are all too common. Worst of all, late payments create gaps in cash flow which can affect your ability to keep your business moving.

It is important to make sure you are using the best practices to invoice promptly and thoroughly. Using an online tool can reduce room for human error by automating recurring invoices, ensuring you send a confirmation of receipt and track to follow up.

Offering multiple, convenient ways to pay can reduce the payment cycle and improve your customer experience. With payment technology developing so quickly, you can find affordable payment solutions that help you accept payments in ways your customers like to pay, increasing the probability of more business and prompt payments.

Seek out same-day settlement options

Whether you’re borrowing or getting paid, new technologies allow small businesses to access the capital they need faster. FinTech companies are partnering with solutions such as INGO Money to receive loan funds immediately, allowing business owners to manage unforeseen expenses as they arise or on the weekends when typical bank transfers aren’t possible.

New solutions allow for same-date settlement of payments, too. Usually, business owners receiving credit card payments through customers would need to wait up to 72 hours for those funds to hit their accounts. Seek out solutions that offer a same-day settlement to ensure you have access to the funds you earned sooner.

Refocus your time on your business, not your books

A study of 400 small business owners showed that more than 30% of businesses will seek investments in new technologies to improve productivity. Consider how a similar strategy could make an impact for your business. Every hour spent selling your products and working with customers instead of managing your books is another hour you can proactively increase sales for your company, and, effectively, your cash flow.

Most new technology solutions are focused on solving this issue while providing greater customer experiences than previously available in the market. New lending solutions give you an approval in minutes, payment solutions reduce the time to be paid and disbursements are now nearly immediate. All of that adds up to more time available to business owners to focus on doing what they love and selling.

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Aditya Narula is the head of customer experience at Kabbage.  Kabbage has pioneered a financial services data and technology platform to provide access to automated funding to small businesses in minutes.  Since 2011, the company has helped more than 200,000 small businesses access more than $8 billion. 

trucking

How to Use Invoice Factoring to Improve Your Business Cash Flow

Cash flow can be difficult for a business to manage effectively. When you wait 30, 60 or 90 days for payment of work already completed, expenses don’t wait with you. They need to be paid now.

But you aren’t at liberty to change payment terms you agreed to with customers. If you try it, they’ll just leave you to find another company that will work with their terms.

Let’s look at a cash flow example. Say you own a small trucking business with a fleet of 5 trucks. The trucks are assigned as collateral to the company that financed them.

Business is good. You have experienced drivers and your trucks haul for great customers who pay well. But paying well does not mean paying quickly.

Yet you have truck payments, fuel, maintenance, insurance, taxes, payroll, and other overhead. You find yourself burning through cash before you get more.

You don’t want to lose your drivers or your trucks. And you’d hate to lose your customers to competitors. But debt is not an option; the trucks are already financed. If only you could get paid quicker.

Then you hear about invoice factoring and how it can smooth out cash flow. You decide to give it a try.

How Does Invoice Factoring Work?

Invoice factoring is not a new concept. It’s been around for centuries. It is selling accounts receivable to get cash for your business.

In the example of the trucking company above, when a load is delivered and the customer is billed it creates an account receivable. But the customer doesn’t pay until the agreed upon terms. That long wait time puts stress on the business.

With invoice factoring, instead of billing the customer, you sell the invoice to a factoring company. The factor then pays you an advance of up to 98% of the invoice value.

The advance you receive depends on the agreement reached between you and the factoring company. That advance is paid to you within 24 hours or less.

The factor bills the customer and waits for payment. Once your customer pays the factor, the remainder is paid to you minus a small fee for factoring.

Instead of waiting long times for payment, your business receives cash immediately after transmitting each invoice. Now the trucking company has the consistent cash flow to carry on hauling freight. As long as you deliver loads, you’ll have the cash right away.

And the factoring company takes on the billing and collections. No more trying to manage accounts receivable and no more spending time trying to collect on them. The factor does it all for you.

How Invoice Factoring Can Help Grow Your Business

Now that the trucking company has improved business cash flow it’s time to focus on growth. Meeting all your expenses on time, having extra money on hand, and saving time and money on accounting services frees you up to take on more work. Here are 20 easy ways trucking companies can increase their profit margins.

Your customers are happier than ever that you’re so dependable, always delivering on time now. They offer you additional loads. Instead of turning them down for lack of cash to operate, you jump at the opportunity.

You begin to add more trucks, more drivers and more trips. And your business is thriving, all because you improved your cash flow by invoice factoring.

And the more your business cash flow grows, the more your factoring grows with it.

Is it Hard to Qualify for Invoice Factoring?

No, not at all. You don’t need a high credit score. In fact, it doesn’t matter if you have bad credit. With factoring you’re not borrowing so your credit is not important.

It’s the credit worthiness of your customers that matters. As long as your customers have good credit and a strong history of paying you will most likely qualify.

That’s why invoice factoring is a great idea for those new to the business and/or having a low credit score. Factoring is getting paid on work you’ve already done. It’s your money; you earned it. You just get it without having to wait. The factor does the waiting for you.

Invoice factoring is also good for businesses that are thriving but experiencing interruptions in cash flow. Getting paid immediately on invoices can really improve business cash flow and reduce the stress caused by long payment wait times.

If you’d like to improve business cash flow, reduce accounting costs and grow your business, you owe it to yourself to look at invoice factoring. It’s used by all sorts of businesses, not just trucking.

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Rachel Donaghy is the Senior Director of Account Management at eCapital.com. eCapital is building a brighter future for the transportation industry. It’s a future where freight companies get paid at the click of a button. Where document exchange becomes data exchange. Where complexity disappears into the background and drivers have the freedom to focus on delivering the next load. You can find Rachel on LinkedIn and Twitter.