Money makes the world go around. This couldn’t be any truer of the business world. As an entrepreneur, you know the value of having access to cash at all times to cover on-going expenses and also for any emergency.
However, in a business you can’t accurately predict when the cash will come in. You need to find the best strategy to maintain a healthy cash flow. And that is when business loans can help.
These cash flow tips should help.
Sometimes you need an additional push to get closer to your dreams. You might already have an SME loan and understandably you don’t want to be burdened with the high interest rates of a personal loan. Have you considered a top-up loan? Many banks and financial companies help entrepreneurs with a top-up loan when a little financial nudge is needed. Interest rates could be a bit higher than the loan you already have, but they will still be way cheaper than a personal loan.
If your business is one that ebbs and flows with the season, such as festivals or actual natural seasons, then you can consider opting for a loan that accommodates the seasonal cash flow of your business. With this kind of an SME loan, you don’t make equal payments throughout the year, but instead make smaller payments during the off season and bulk payments when business is in full swing.
These types of business loans are usually for terms of less than 12 months, but that can vary from lender to lender. Another advantage of these loans is that most lenders allow you to make multiple payments during peak season without any early payment penalties.
We can’t stress enough on this one. You need to speed up receipt of incoming cash.
Shorten the time taken to receive payments. This means sending out invoices on times, changing payment terms from maybe 60 days to 30 days, offering customers discounts for early payments and changing a late penalty to those who delay.
Monitor your receivable on a weekly or fortnightly basis to stay on top of receivables.
Entrepreneurs rarely have idle money. If you have money that is just lying in a savings account and earning a pittance of interest, then you need to immediately look for financial vehicles that will give you handsome returns. If not, when there is positive inflation, these funds will actually lose value as against money that is invested into the money market or in short-term interest accounts.
How quickly can you convert resource input into cash? That is essentially your cash conversion cycle. It is the amount of time, in days, that it takes for you to see returns on your production and sales process, as sales to customers. You should comfortably be able to sell inventory, collect receivables and pay your bills without incurring penalties or delays.
This is a measure of a company’s cash management and the overall health of the business. The shorter the time period, the more efficient is the business’ cash management. This is a point many lenders consider while debating approving an SME loan.
Remember, you need to consistently monitor and tweak your business infrastructure to manage cash flow. Look for loans and other means to finance the scale-up of your business.