Many businesses experience cash flow challenges at one time or another. Any business that sends out invoices, which includes manufacturers, distributors, logistics, temp agencies, consultants, and many other business services, are at risk for cash flow difficulties.
Let’s take a look at some of the common causes and solutions for business cash flow problems.
Common Causes of Cash Flow Problems
There are several possible reasons for cash flow problems. Here are a few of the most common ones your business may encounter.
Seasonal Fluctuations
Many businesses are seasonal. For example, a snow plow business is going to see the majority of their business in the winter months, they likely repurpose their truck for other jobs in the remaining months, but winter is most often their busiest time. During the off-season, these businesses can run into cash flow problems.
Upgrading or Expanding
Growing your business often requires investing. Opening another location, hiring more employees, buying new equipment, and investing in more inventory all cost money. If your cash flow is limited, you may need to postpone such strategies.
Customers Delay Payment
Cash flow problems can set off a vicious cycle. If your customer has cash flow challenges, they are likely to delay payment, creating a cash flow problem for you as well. Other customers may simply have extended payment terms or are casual about paying invoices and may need several reminders before they pay.
Random and Unexpected Events
You can never predict what will happen, either on a personal or societal level. A business may have a large unexpected repair to their truck or equipment that interrupts their cash flow. Businesses may experience damage from a fire or flood. An economic downturn can cause an unusual drop in revenue.
Best Ways to Boost Cash Flow in Your Business
Now let’s explore some solutions to prevent or overcome cash flow problems in your business.
Traditional Financing
You can always apply for a small business loan. However, it can be difficult for newer businesses to obtain loans. You need to have strong credit, collateral, or a proven track record.
Control Costs
Regularly review all expenses to identify areas where cost savings can be made. This could include negotiating better deals with suppliers, finding alternative suppliers, or reducing non-essential expenses. Implementing cost-cutting measures should be done strategically to avoid compromising the quality and efficiency of operations.
Set Firm Deadlines
If customers are consistently late in paying invoices, it may be time to stop doing business with them. This can be a difficult decision as no one wants to lose customers. However, you need to assess the risk of the customer not paying at all and what that could cost your business. At some point, you may need to give slow-paying clients an ultimatum, put your efforts into acquiring ones who are more reliable, or consider non-recourse factoring to protect your income
Use Invoice Factoring
Factoring invoices is one of the most effective ways for businesses to enjoy consistent cash flow. There are several benefits to using this type of financing. You can collect payment on invoices in as little as 24 hours. Smaller and newer businesses can qualify for factoring as long as they have credit-worthy business customers who pay by invoice. Clients pay the factoring company, saving you time with collections. Factoring also gives you a way to finance your business without taking on additional debt.
Riviera Finance Offers a Factoring Solution
Riviera Finance has been a leader in providing invoice factoring to businesses in many industries for over 50 years. We offer our clients many benefits.
- Fast Delivery — We provide the fastest turnaround time in the industry.
- Maximum Cash Advances — Advances up to 95% of the invoice value.
- Convenience — Access your account 24/7 with our online management system.
- Simple to Apply — Fast application process with no setup fees or long-term contracts.
- Secure Company — Riviera has been in business since 1969 and has diversified funding sources.
For more information about invoice factoring, contact Riviera Finance.
Related Articles:
- How Much Does Factoring Cost?
- How Invoice Factoring Works – In 6 Easy Steps
- Developing a Cash Flow Analysis
