Cash Flow Problems Causing Stress?
Ways to Improve Accounts Receivable Cash Flow
According to a US Bank survey, 82% of business failures are from poor cash management. Poor business decisions put your business in a cash flow crunch, especially in your prices, staffing, and overall spending. Most companies encounter cash flow obstacles, but with the help of invoice factoring and PO financing from Bankers Factoring, your business can obtain working capital now.
Businesses of all sizes have cash flow constraints because they fail to hit their margin goals; however, not all companies understand or know they are missing their targets. Even worse for business owners is waiting for 60, 90, or 120-days until the customer pays for the losing transaction. How do you cover payroll or support your family? Contact Bankers Factoring today to learn more about our financing solutions to help your liquidity crisis.
The USA Today reported that companies with over 500 employees pay their suppliers on average 15-days late. If you are a small business or have one large client, you have no power in this situation. The larger corporation is using you as a line of credit to manage their cash more effectively.
At Bankers Factoring, we have found these most common six causes for cash flow problems. Identifying the causes of cash flow issues in your business is essential to solving the issues.
1. Poor financial planning
Many businesses go into each year without a plan, and their financial situation diminishes over time until there are no more cash reserves. Financial planning assesses your current financial situation, compares current data to historical data, and forecasts overall performance and budgets into the future.
More importantly, regularly reviewing and monitoring variances to plan increases the likelihood of catching major cash flow issues before they happen. This process enables a company to manage its cash effectively, but it must include plans to access additional financing if necessary.
2. Weak sales or profit margins
Weak or underperforming sales performance will most definitely impact your cash flow as sales generate your revenue. Declining sales occur for a variety of reasons:
- Lost a significant account or customer
- Lack of product or inventory to sell
- Increased competition by existing or new businesses
- Poor product or service delivery: unsatisfied customers
- Seasonal trends in the industry
- External trends in the macro-environment: economic, social, political, legal, technological, and environmental
Gross sales are different than gross margin. Declining sales reduces the overall amount of money coming into the company. At the same time, your margin is the amount of money left over after you deduct your expenses from the revenue. Increasing material, transportation, and labor costs creep into your margins and can quickly diminish your profits.
If your sales are accelerating, it is critical to assess your profit and loss statement to ensure your business is truly making money.
3. Late paying customers
Delinquent payments from your customers are a sure-fire way to expose your business and its lack of working capital. In that same survey from US Bank, small businesses on average were owed $84,000.
For example, a recent client worked with a commercial customer on net-60 terms. Our client found out that the billing period does not begin until the customer receives the inventory at their facility. This could add weeks or months to the receivable period.
Our client was paid four months after they sold the merchandise. With the help from Bankers Factoring invoice factoring and PO financing, our client no longer has to worry about these anomalies.
A recent report from Melio found that 25% of small businesses have to wait 30 additional days to receive payment from large customers. 44% of companies claimed that past due payments negatively impact their business operations. Given this information, businesses must build cash reserves or have a factoring facility in place when they provide payment terms to credible customers.
4. Poor inventory management
In a 2018 survey, half of the participants responded that overbuying inventory and buying the wrong products were sinking margins. When your merchandise is not effectively managed, your company sinks thousands of dollars into purchasing material that it may even need or that may become obsolete due to shelf life. These funds invested into inventory are the cash that can be reallocated to growth projects or funding daily operations.
Many small businesses do not utilize inventory management software or regularly conduct physical counts. Implementing standardized processes, internal controls, and planning to manage your inventory are the first steps to turn around your inventory management. Here are steps to manage your inventory even without expensive inventory software:
- Inventory forecasting: gather data from customers for future orders and evaluate historical data
- Consistent physical counts
- Controlled cycle counts
- Code All Inventory Green, Yellow, & Red-Minimize the Yellow and quick sale the Red!
- Build an internal worksheet to track, record, locate, and identify all inventory parts
- Must be aware of the cost of goods sold and gross margins when buying
5. Inflexible financing facilities
It is essential to look around for efficient solutions that provide optimal funding for your needs to finance your business. As businesses go from startups and mature in their business cycle, they can potentially obtain traditional bank financing or lending increases.
For startups or small business owners, your options to obtain traditional financing are limited for many reasons.
- Distressed finances: tax liens, bankruptcy, or economic downturn
- Poor credit
- Lack of business history
- Poor financial statements
With Bankers Factoring, our invoice factoring program offers a flexible line of financing. As your business grows its accounts receivables, your access to working capital increases with Bankers Factoring.
6. Seasonal business cash flow problems
It is common in many industries to have highs and lows at specific times during the year. During the season and high volumes, businesses will experience additional costs such as marketing, staffing, material, and supplies. Conversely, when your business is out of season, sales are lagging, and debtors are behind on payments, your cash flow will be strapped.
Businesses owners must understand the seasonality of their business cycle to mitigate potential risks from unforeseen events. Disruptions in the weather and climate or external factors out of your control can either accelerate or diminish your sales projection. Accordingly, building your cash reserves is critical to surviving the seasons of your business.
Bankers Factoring is honored to help businesses of all sizes with our flexible financing solutions. Our lowest cost and most reliable solutions of accounts receivable factoring, payroll financing, and PO funding remove the cash burden from your business.
Cheaper than swiping a credit card, we can help you safely improve cash flow and give you the ultimate tool against slow-paying customers. Both a short term and a long term solution, our help with cash flow management lets you pay your bills and sell more products.