YOUR COMPANY IS LOOKING FOR OPERATING BUSINESS CASH FLOW SOLUTIONS!
HOW TO IMPROVE CASH FLOW- GUIDE TO BUSINESS CASH FLOW FINANCING
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Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
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"Business Cash Flow Financing is the ultimate solution for entrepreneurs and business owners seeking to secure the financial stability and growth of their enterprises."
"Imagine having the financial flexibility to seize opportunities, overcome challenges, and drive your business forward without the burden of traditional loans or crippling interest rates. Business Cash Flow Financing can make that a reality."
Unleash the Power of Business Cash Flow Financing
INTRODUCTION
No secret that the lifeline of every business lies in its cash flow. It's all about opportunities and growth.
Business Cash Flow Financing can be a game-changer for businesses of all sizes.
Let the 7 Park Avenue Financial team show you how to harness the power of cash flow financing to fuel business, including benefits, best practices, and real-world applications. Prepare to elevate your understanding of business finance! Let's dig in!
Many Canadian business owners and financial managers find out the hard way that business success is almost always also tied to having and improving business cash flow.
It's when sales and profits don't match cash and working capital that the problem begins. The bottom line, getting rich on paper only is not all that fun so let's focus on how to increase cash flow.
UNDERSTANDING YOUR BUSINESS OPERATING CYCLE WILL LEAD TO BETTER CASH FLOW SOLUTIONS
To avoid cash flow problems, we can quite simply say that it’s a 'matter of time'. When we say 'time' we mean it in the context of how your firm operates, in essence, its operating cycle.
Many new or inexperienced business owners often find out painfully that the cycle of time from getting an order to collecting the sale can be significant!
In a perfect world, (and we know it's not) your business wants to have the flexibility to allow your business bank account to fluctuate constantly, from surpluses to positive balances.
NEGATIVE CASH FLOW SIMPLY MIGHT MEAN YOUR BUSINESS IS GROWING!
One fallacy often missed by the entrepreneur is that deficit cash flows are a sign of weakness. In reality, if you are selling, and growing, it’s simply a case of the ' timing ' we have spoken of. You have built up an investment in receivables and inventories, and are waiting to get paid, converting those into operating positive cash flow.
IMPROVING ASSET TURNOVER AND MANAGEMENT OF ASSETS IS KEY
But, if you don’t fail to recognize and manage how to improve asset management business cash flow problems occur. It's at these times that your bank or other lenders you might be dealing with may attempt to rein in your business, in essence cutting off future working capital requirements.
EVERY BUSINESS SHOULD HAVE ACCESS TO A BUSINESS LINE OF CREDIT
One of the most obvious ways to effectively manage your cash cycle is to ensure you have a Canadian chartered bank operating line of credit that helps facilitate funding for the sale of your goods and services.
This facility in effect is in a position to manage your time horizon when it comes to getting an order, shipping or delivering a product or service, and then waiting 30... 60... for the due date of receipt of client funds.. well... you know what we are talking about!
Consider offering an early payment discount on accounts receivable to customers who pay your firm - a typical offering is 2% 10 days. That small reduction in your profits will accelerate cash allowing you to reinvest in the business with that excess ' cash on hand '. Late payments for clients is a huge factor in improving your overall business funding needs.
Many businesses, particularly those that are either small or start-up in nature quite frankly don't qualify for business cash flow lines of credit in the manner that they might wish. Can this challenge be solved?
CONSIDER ALTERNATIVE FINANCING SOLUTIONS
Yes, it can. To improve your cash position, you can do one of two things. First, you can manage more effectively, and second, you can access alternative financing vehicles. A business credit card is only one way to access additional cash!
DON'T FORGET TO FOCUS ON THE INTERNAL MANAGEMENT OF CASH AND ASSETS
Are we saying you can fix your problems via management? Absolutely. You can tighten terms and credit policies, take discounts when available, and enforce stricter collections from clients. For whatever reason many clients we talk to can't or are reluctant to manage as above. We'll never know why.
ALTERNATIVE FINANCING SOLUTIONS
The solution then? Enter alternative financing. By using such methods as receivable financing outside the bank, P O Finance, inventory financing, merchant advances, tax credit monetization, Sale leasebacks, etc. you can still be successful.
Some of these financing vehicles, even if more costly can make your business more successful if properly managed.
For instance, you can increase sales by providing longer payment terms to clients, something your competitor might not be able to do. Additionally, small businesses can take trade discounts with the funds they receive from receivable financing, increasing profits if the discount is more than the cost of financing. Business owners should always be looking for ways to improve cash positions.
Tuition is often high in the school of business operating cash flow in your efforts to boost your cash. Mistakes can be costly when you try to save money and if you don't take measures to improve and recognize cash flow problems.
KEY TAKEAWAYS
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Invoice Factoring: This concept involves a business selling its accounts receivable (invoices) at a discount to a third party, known as a factor. Businesses gain immediate cash, which is crucial for smooth operations and growth. The factor then collects payments directly from the clients. This solution is especially useful for businesses with long invoice payment terms. For companies with growing sales factoring can deliver significant cash flow potential. A/R financing brings no debt to the balance sheet.
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Merchant Cash Advances (MCA): Under these cash flow loans businesses receive a lump sum of cash upfront in exchange for a portion of their future cash flows. Typically used by companies with high credit card sales, MCAs provide quick access to funding but can have higher costs compared to traditional loans.
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Line of Credit: This is a flexible loan from a bank or financial institution. Similar to a credit card, it allows businesses to borrow up to a certain limit and pay interest only on the amount borrowed. Lines of credit are useful for managing a company’s cash flow and for handling unexpected expenses. Lines of credit from banks are typically structured as an unsecured loan facility.
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Asset-Based Lending: In ' ABL ' cash flow lending, loans are given based on the value of a company’s assets, like inventory or equipment. It’s a good option for businesses that need financing but might not have strong credit. Asset-based loans can be more expensive but offer a way to leverage company assets for cash flow.
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Trade Credit: In trade credit, suppliers allow businesses to buy now and pay later. It’s an effective way to manage cash flow as it delays the outlay of cash while goods are sold or used in production. Negotiating better terms with suppliers can significantly improve a company's cash flow situation. When it comes to managing trade credit cash flow lending works without the need to borrow externally via a cash flow loan solution.
CONCLUSION
Call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor on business cash flow challenges that can be fixed ... properly.
Explore the business finance solutions around how cash flow financing works, and the various SME Business Financing options available and find the one that suits your business needs best.
FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION
What is Business Cash Flow Financing?
It's a funding method where businesses utilize various financial instruments to maintain or enhance their cash flow. This can include loans, lines of credit, inventory finance, and invoice financing, all of which enhance business stability.
How does invoice factoring improve cash flow?
Invoice factoring accelerates cash flow by allowing businesses to sell unpaid invoices to a third party at a discount, providing immediate funds.
Can small businesses benefit from cash flow financing?
Absolutely. Small businesses often leverage cash flow financing to manage operational expenses and foster growth, especially when traditional loans are inaccessible or insufficient and the cash flow statement won't support traditional bank financing.
What are the risks associated with Merchant Cash Advances?
Merchant Cash Advances, though quick and easy, often come with high fees and percentages. This can result in substantial repayment amounts, affecting long-term cash flow for this type of short term loan.
Is a Line of Credit a good option for managing cash flow?
Yes, a Line of Credit offers flexible borrowing options, ideal for handling cash flow fluctuations and unforeseen expenses in a business.
How does asset-based lending work?
Asset-based lending involves securing a loan against the company's current assets and physical assets such as equipment and inventory, providing a flexible funding option based on asset values. Asset based loan solutions are a growing part of the Canadian business financing landscape.
What’s the difference between trade credit and a term business loan loan?
Trade credit is an arrangement to buy now and pay later with suppliers, whereas a loan involves borrowing money from financial institutions under agreed terms and interest.
Are there specific industries that benefit more from cash flow financing?
Industries with long invoice cycles or seasonal sales patterns often find cash flow financing particularly beneficial for sustaining operations and capitalizing on growth opportunities.
What impact does cash flow financing have on a business's credit score?
Proper management of cash flow financing and business loan repayment can improve credit scores, while mismanagement or over-leveraging can lead to a negative impact on credit ratings.
Can startups utilize cash flow financing effectively?
Startups can use cash flow financing, but they need to demonstrate potential for revenue generation, as lenders will consider the risk profile and the business model's viability. The Canadian government's small business loan program can also be beneficial for many early-stage or startup companies. The personal finance of the business owner must be in order, including a good credit score to qualify for the small business loan - aka ' SBL '
What are the typical terms for a business line of credit?
Terms can vary widely but generally include interest rates dependent on creditworthiness, a set borrowing limit, and a defined period for repayment or renewal.
How can businesses negotiate better trade credit terms?
Businesses can negotiate better terms by establishing strong relationships with suppliers, demonstrating consistent payment history, and showcasing financial stability.
In what scenarios is invoice factoring most beneficial?
Invoice factoring is particularly beneficial in scenarios where businesses have a gap between invoicing and payment receipt, especially for those with long payment cycles or large, consistent invoice amounts.
