It’s a phrase we hear often, and for good reason: "Cash is king". Approximately 60% of small businesses deal with cash flow problems each year. It’s a fact of life.
Unfortunately for many, the consequences of this routine problem can be severe. Statistics show that 80 – 90% of businesses close their doors each year because of cash flow issues.
Understanding the role that cash flow plays in the grand scheme of business and finance management is critical to success. Poor cash flow not only closes doors, but also inhibits growth and can create a number of complications:
- Access to capital gets harder. Lenders look for positive cash flow trends —historic, current, and future. Without them, getting the capital you need to expand and grow is problematic.
- Meeting payroll gets tricky. Delaying payroll to conserve cash is never a good thing.
- Your credit score could suffer. With no money to pay bills, an overdraft or maxed out credit card could impact your score.
- You have to turn away business or reduce product development. Without cash to fund inventory, labor costs, etc., new business is harder to service.
- You can’t pay your taxes. If you’re unable to meet your tax obligations, the IRS can enforce penalties and interest.
- Stress. Say no more.
Cash flow problems can be caused by a number of factors, such as unexpected expenses, too much cash tied up in inventory, etc. Yet one of the most common and persistent causes is late-paying clients. In fact, Fundbox, a small business financing company, found that 64% of small businesses are affected by late payments, and reported a staggering 48% of net 30, and 45% of net 60 invoices are paid late.
That is a big problem.
The good news is that while you can’t force clients to pay their bills on time, you can take steps to control the problem. Prompt and accurate invoicing is one way, and diligent collections is another. Controls, however, only go so far, so you’ll also need a plan to mitigate the impact when clients do pay late.
Having a financial cushion is always a good idea, but it’s worth considering third-party financing options. For example, you can borrow against a line of credit when you need it and pay it back when you don’t. If your main street bank can't help, consider alternative financing companies. These companies, unlike traditional banks, specialize in making financing more accessible to small businesses.
Another popular and low-hassle solution is to use an invoice financing service like Fundbox. Fundbox does not require any paperwork to apply and instead leverages the data in your accounting software to let you advance unpaid invoices the moment you need the funds. Fundbox gives you access to cash you’re owed as early as the next business day.
|(FundBox will be available for Kashoo in June 2016)|
Rather than face crippling invoice-related cash flow problems, take the time to understand your options and put a plan in place to mitigate any potential issues before they occur.