I have been in the commercial finance industry for almost seven years. If there’s one thing I’ve learned in that is that for a business to succeed is it must cash flow.
This means that you’re adequately planning out your sources and uses of cash. The main source of course is converting your accounts receivables into cash. When I say uses of cash, I mean:
- Paying your employees.
- Paying your vendors.
- Buying inventory.
- Business development (yes…..while you may not realize it…….this costs money as well)
If you do not consider yourself to be a planner, then now is no time like the present to change things.
Planning Your Cash Flow………………………
There are a lot of things to take into account when planning your Company’s cash flow. If you’re thinking this may take some work then you’re right. Here are a few things to consider when planning your cash flow:
- Project out what you think your monthly sales might look like. Your estimates should stay more to the conservative side. I would maybe recommend using historical data to plan your revenue.
- Plan out your estimated collections.
- Estimate your fixed costs
- Payroll
- Rent Expense
- Insurance
- Phone/Internet
- You may want to consider having some sort of cash reserve for any unexpected event that ends up using extra cash.
How to Improve Your Cash Flow……………………..
Of course there are a number of ways you can turn to improving cash flow:
- Find an investor.
- Efficiently convert receivables into cash.
- Obtain payroll financing, such as a factoring line.
Now when you read the above list and think about it, which of the above choices sounds the most simple? Probably obtaining the small business loan would be the easiest. This of course depends on the type financing you go after, the credit strength of your company, and credit strength of your customers.
If you consider the other options, finding an investor can be difficult, and you could lose some control of your company. Efficiently collecting receivables can be difficult as well, not all customers pay their receivables in a sufficient amount of time. It can take some companies 30, 60, or even 90 days to pay. That’s when you turn to payroll financing. This could leave you not worrying about how to make payroll.
Payroll Financing………………
Okay so you’re trying to improve the way you operate your business which includes improving cash flow. As mentioned, there are some things you can do to raise the extra capital. Really, when it comes down to it, all of the receivables management in the world will not get your customers to pay faster. In the end, you’re still left wondering how can I improve my cash flow?
As mentioned you could consider payroll financing. One of the more common forms of payroll financing is accounts receivables financing or factoring.
Factoring is where you sell your accounts receivables related to credit worthy customers to a third party known as a factor. While advance rates vary, they are typically around 80%. Once the invoice is paid you get the remaining portion back less any applicable fees.
The Nice Thing About Factoring……..
The nice thing about factoring is that it bridges the gap between when an invoice is billed and the cash is collected. You don’t have to wait 30, 60, or 90 to collect your receivables and plan your cash flow.
Food for thought………depending on the factoring company you chose to go with, everything is done online and is virtually paperless.
If you’re not a planner and don’t know what bills are due from one week to the next. If you don’t have your cash flow planned out to where you can adequately make payroll, then your business could suffer. Don’t let that happen to your business. Consider setting your business up with payroll financing.