Of the many challenges that small businesses face, the vast majority cite cash flow as one of the biggest roadblocks to
running a successful and growing enterprise. About 60 percent of them fail
for this reason alone.
The flow of capital in and out of a business is an
inevitable part of operating, but there are ways to prepare for working capital
gaps. Here, the most common root causes of such cash-flow gaps and
tips to remedy the situations.
The biggest problems
·
Small businesses often don't know when a
customer will pay, and pinpointing the influx of capital is nearly impossible
·
Days Sales Outstanding is the measure used to
calculate the number of days a company waits to collect payment from accounts
receivable. A study released by Experian showed that large companies were
paying invoices an average of about eight days overdue, a 14.1
percent increase from the previous year
·
Small businesses are often at the mercy of
larger companies and therefore have less negotiation power when it comes to
terms of payment
And what to do about them
·
Accessing outstanding invoice amounts with
programs like Fundbox: There are product applications such as
Fundbox that link directly to accounting software enabling small business
owners to instantly advance the full amount of an invoice and avoid the
challenges with longer payment terms. Programs like this bridge the gap between
accounts receivable and accounts payable. They also alleviate the stress and
uncertainty of not being able to predict when an invoice will be paid
·
Merchant cash advance like Square Capital,
CAN or Rapid Capital Funding: A structured lump-sum payment to a
business in exchange for an agreed-upon fee or a percentage of future
credit or debit card sales. This option is best when a small business is in
need of a large amount of money immediately and has substantial credit card
transaction volume through its POS terminal
·
Alternative lenders like OnDeck: OnDeck
is a platform that provides immediate, direct loans to small businesses. With
alternative lenders such as this, the average loan is around $35,000 which
is most helpful for purchasing equipment, hiring additional employees or
beginning a marketing campaign
·
Invoicing products like Freshbooks: Freshbooks
is an e-invoicing and billing software for owners of small businesses that send
invoices to clients and get paid for their service or products. Freshbooks
assists small businesses in keeping their invoices organized, as well as
tracking time and additional expenses
·
Set up Automated Clearing House payments
using sites like Bill.com: Bill.com facilitates electronic payments made
through the Automated Clearing House network, a secure system for clearing
electronic payments between banks. Bill.com simplifies how businesses pay and
collect their bills
·
PayPal: It's not only an alternative payment
solution, but also a credit provider to merchants that have online businesses
According to the Small Business Administration, more than
23 million small businesses in the U.S. account for more than 54
percent of the sales of goods and services. Despite small business being
the engine that fuels the U.S. economy, a restrictive financial environment
makes it difficult to secure working capital as small business lending is not
profitable for large banks.
Taking the above into consideration and knowing that cash
flow is the lifeblood of a strong operation, understanding the available
options is critical. These solutions are good examples of the tools small
business owners have at their disposal to get through cash flow gaps and access
capital to invest in growing their businesses.
Source +Entrepreneur
Tagged +Entrepreneur
Source +Entrepreneur
Tagged +Entrepreneur
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