Businesses need cashflow to pay the bills, but have limited options at that crunch time when extra money is needed to keep going.
One back-stop is a business loan that can provide a working capital lifeline if your business is struggling to stay above water because of customers paying late or unexpected outlay on stock or equipment.
Although a business loan offers much-needed working capital, you need to show a lender you are managing your cashflow when asking for the money.
Here are some tips on avoiding cashflow problems:
Manage your cash
Monitor payments in and out, late payments and stock levels. Check month-to-month changes and quarterly trends to spot where cashflow is squeezed.
Invoice customers without delay
Make time to send out invoices promptly and collect the information you need to send out invoices when you make a sale or set up a customer account to save time. Give a clear payment is due date every time.
Offer payment options
Go for a bank transfer first – you get the money quicker, but accept cash, cards and even PayPal
Give early payment discounts
Tempt a customer to pay promptly with an early bird discount
Keep an eye on your aged debtors list and chase late payers with a polite prompt
Set credit rules
Manage your cashflow instead of reacting to customer demands. Credit control is about managing non-payment risk to your business
Accept some customer’s won’t pay
Have someone on the staff, your spouse, a friend or relative follow up late payers with telephone calls, friendly warnings and if all else fails, debt recovery through the courts
Pay bills when they are due
Don’t pay early unless it suits you – pay invoices on their due date to keep your cash in the bank for as long as you can
Ask suppliers for credit
Suppliers want your custom and will often extend payment deadlines to keep your business
Don’t tie up cash in stock
Think of stock as money. While it’s with the supplier, the cash is in your account but if you move stock to your premises, you are moving cash out of your bank account as well
To set the amount you need to borrow with a business loan, provide a cashflow forecast itemising income and expenses. This tool will show when cashflow is most stretched and by how much.