Fix Your Cash Flow Crunch: Factor

Cash flow is the life blood of business. Understanding and managing cash flow successfully is usually the difference between the successful businesses and those that fail. This becomes particularly important during a cash flow crunch.

Cash flow issues can happen for a number of reasons. Customers fall behind in payments. Manufacturing, shipping or other business costs rise. Business growth is soaking up working capital and so forth. The following provides strategies to help get through this rough time.

Sell more. Particularly if you can sell COD. This will get cash flowing through the business and will help the top and bottom lines. However, if selling COD is not an option then this might not be the best strategy, and might actually  make the situation worse.

In this case putting effort into collections might be the better bet. If the business does not sell on COD terms then customers definitely owe money. Take a look at the aging schedule and see if customers are past due on payment. If so, take all appropriate steps to expedite their payment.

If cash reserves are still low, try negotiating with your suppliers. If your business goes under, they lose business; it’s a lose, lose. Hopefully they will be willing to work something out with you. Ask them to offer 30 day terms if they do not already or a special discounted rate. If the business has been a good customer and had a long relationship with the supplier, they should be able to work something out.

Cutting overhead is always an option. With the state of the economy, particularly in commercial real estate, negotiating lower rent with your landlord may be a fruitful endeavor. If they are not budging, moving to a smaller or less expensive location can be an effective way to cut overhead. Also, take a look at general expenses.  If there is a way to cut consumption of power, water, labor, material; any way to make business processes more efficient could prove valuable to the cash flow position.

Lastly, look at outside financing. Asking the bank to raise the limit on your line of credit could provide the necessary breathing room to get out of the current crunch. However, it is usually bad policy to ask for financing from the bank when in crisis; banks are less likely to grant your request. If this is the case, turning to an accounts receivables factor is a solid option. They will allow businesses to gain immediate access to around 80 percent of a business’s receivables base. As the business makes more sales, the factor can provide more funding if needed to assist the business through their cash flow crisis and get them back in good standing.