Then, one day, they suddenly realize that while their company is doing great and their sales are through the roof, they don’t have enough money to cover even some basic, day-to-day expenses. Fortunately, this can be avoided with a couple of simple cash flow tricks.
1. Getting a Loan
The most common and straightforward way of dealing with a cash flow situation lies in getting a new loan. The biggest downside of this method lies in the fact that you’re already in debt, which means that you A) get even further from the break-even point, B) get another interest rate to worry about and C) may have a bad credit rating, to begin with.
The most efficient way to deal with this issue is to get a tad bigger consolidation loan (if you’re able) or look for an alternative lender or credit union that offers the terms you find suitable.
2. Selling invoices
The idea of selling invoices rests on the idea that your products are doing great but that you still can’t afford to patiently wait for all the credit payments to arrive. In this scenario, you contact a factoring company and offer to sell them an invoice.
Most often, you get 80-90 percent of the full value right away and additional 5 to 15 percent when the invoice money finally arrives.
The remaining 5 percent (sometimes even as low as 1.5 percent) is the fee that the company charges for this service.
The greatest advantage of this method lies in the fact that you’re actually selling an asset, instead of getting another loan and, therefore, burdening yourself with yet another obligation.
3. Encouraging Cash Payments
Instead of insisting that your customers pay upfront or just hoping that they’ll do that, you can try to actively encourage buyers of your products to make cash payments. First, you need to make cash sales more desirable to customers, sometimes even by offering a sizable discount.
For this to work, on the other hand, you need to establish a physical presence and enable your audience to pay you with cash, in person. Finally, cash payments aren’t the only suitable option, seeing as how getting paid via credit card does the trick, as well.
4. Accepting or Offering Gift Cards
The greatest problem with the above-listed account receivables lies in the fact that you’re supposed to patiently wait for the money to arrive, often when you need it the most. Fortunately, when you decide to go with gift cards, you get to capitalize on the opposite phenomenon.
Namely, you, as a brand, get the money up front. This means that you get paid before your client actually gets the product they want or need. This reason alone is why so many businesses are opting for the co-branding prepaid card system as a mean of improving their cash flow.
5. Making a Preorder System
Offering preorders is an amazing tool often used by startups that stands to sell people products that are not yet finished. The reason why this is such a great idea is due to the fact that you can use these funds to actually manufacture products or further improve them, instead of using them to cover debts taken with this same purpose in mind.
For this to work, nonetheless, you need to have a solid presentation and learn how to convince people that your product is legitimate and not just another scam.
6. Organizing a Subscription-Based System
Lastly, if you’re providing a service, one of the best ways to standardize your income and make it more reliable is to organize it in a subscription-based system. The reason why this is so great is due to the fact that you can predict your income and count on it, month after month.
Furthermore, there’s always a probability that some people will keep paying even after they stop using your service, simply because they forgot to cancel the subscription or can’t be bothered to do so.
Needless to say, not all of these tricks apply to every industry and business model. In some scenarios, preordering is not even an option, while in some other situation, the same goes for subscriptions. Nonetheless, chances are that you’ll be able to use at least one of the above-listed six tricks in your own moment of cash-flow-crisis. The more you know, the better position you are in.
other valuable readings:
Image Credit: Pixabay
helpful? … then please share it
- Steven Bragg
- AccountingTools, Inc.
- Kindle Edition
- Mike Michalowicz
- Kindle Edition
- Mary Loughran, Praveen Gupta
- Espresso Tutorials GmbH
- Kindle Edition
- Michiel P. Ranke (ed), Alexander Huiskes (ed), Anthony N. Birts, Carlo R. W. de Meijer, Petra Plompen, Gary Throup
- Publisher: Riskmatrix
- Edition no. 4 (11/01/2018)
- John Tennent
- Publisher: Economist Books
- Edition no. 0 (03/01/2012)
Last update on 2019-06-01 / Affiliate links / Images from Amazon Product Advertising API