How to Solve Your Businesses Cash Flow Problems

It is staggering to think that 96% of businesses fail within 10 years, even in a constantly changing economic and technological climate. When you also consider that around half of these fail within 12 months, the challenges facing aspiring entrepreneurs becomes even more obvious.

While there are many factors that can impede small business growth, cash flow is one of the most prominent. This is particularly true during the formative stages of commercial growth, during which time it can be exceptionally difficult to generate revenue and viable levels of working capital.

In this post, we will look at the steps that your business can take to optimise its cash flow and achieve sustainable growth.

The Rise of Short-term Finance: How Can it Boost Your Businesses Cash Flow

Historically, the only viable way for businesses to boost their initial cash flow was to seek out external investment or a bank loan. The issue with these options is that they encumber your business with long-term debt, while in some instances they may also require you to sacrifice equity within your venture.

There is now a wider range of options in the modern age, however, each of which offers flexible funding and minimise the length of the debt cycle. One of the most widely used is trade or PO finance, through which you leverage a confirmed purchase order to secure capital that enables you to complete an order and optimise cash flow levels. You can then pay suppliers in instances where they demand a percentage of funds in advance, before settling the balance once the client has met their own invoice terms.

This places a cap on the debt cycle and enables you to retain all of your company's equity, without impeding on your ability to fulfil orders.

The same principle can be applied to invoice financing, through which businesses can managed 60 and 90-day payment terms by leveraging their accounts receivable. So, once a project has been completed and invoiced, you can sell the value of this to a third-party investor and receive the funds immediately. Once again, this short-term debt can be settled once the client meets their own repayment terms, meaning that you can boost your working capital levels while also offering your clients flexible agreements.

Addressing the Cash Flow Issues Facing Small Businesses

Depending on the nature of your business, you may want to combine both PO and invoice financing in order to create the optimal cash flow in your business. There are even service providers like Touch Financial that offer both options within a single package, so this may be something for your small business to consider.

The key is to borrow in relation to the scale and needs of your business, while also focusing on the levels of cash flow required to sustain its functionality.