If you’re a business owner you can surely relate to the following situation: Business has been brisk and inventory has been flying off the shelves — but you still find yourself in a cash crunch. What you’re experiencing is called lagging receivables, something that can have a highly detrimental effect on your cash flow.
Receivables — amounts owed to a business — are regarded as an asset. It’s certainly a good thing to be sending out lots of invoices but you can’t spend what you don’t have in hand, asset or not. Unless you demand payment upon delivery, it’s likely you’ll experience a lag in receivables. There are a couple primary reasons for this:
- Your payment terms may be net-30, net-60 or even longer — meaning your clients get your products upfront and have some time to send payment to you.
- Your clients may be experiencing cash flow issues of their own — so they’re trying to prolong making a payment to you for as long as possible.
If you’ve structured your payment terms to support your cash flow needs and most or all of your clients pay on time, congratulations! However, if you find yourself experiencing prolonged lagging receivables, that can negatively affect your business operations — since you have to continue meeting your financial obligations and saying “the money is coming” won’t cut it. What can you do?
Non-Traditional Funding Options to Address Cash Flow Issues
When you find yourself with cash flow issues despite your business doing well, you do have options to help get you through a temporary shortfall. Banks and other traditional lenders may not be keen on providing funding solutions that address cash flow issues due to lagging receivables but alternative lenders have a number of products that may help.
- Factoring/accounts receivable financing—This involves selling invoices at a discount to gain access to immediate cash. It’s a strategy that accelerates your cash flow without incurring any debt.
- Asset-based lines of credit—This involves using your accounts receivable, inventory or equipment to secure a line of credit. You can draw up to your limit to ensure you don’t fall behind on your payments, including payroll.
- Bridge or term loans—These involve getting approved for funding to cover a temporary shortfall, such as might occur when you have a lot of receivables.
Unlike traditional funding sources, alternative lenders are flexible and provide quick access to funds for businesses experiencing cash flow challenges. They understand speed means everything in situations where cash flow is an issue.
The Bottom Line
Exploring non-traditional funding options as part of your financial strategy as a business owner can be a smart move, especially when you just need a little help to get yourself through a temporary cash flow issue. Employing proactive cash flow management can result in significant benefits for your business, ensuring you’re able to meet your financial obligations and even accept new opportunities in the event of a prolonged receivables lag.
Clear Skies Capital has helped many small businesses address issues created by lagging receivables by working with them get the financing they need in a timely fashion. Contact us today at 800-230-9822 to discuss your business’s needs.