If there’s one headache a large number of business owners share, it’s cash flow gap. Because you tend to run lean, there’s sometimes not a lot of extra money sitting in your business bank account to cover expenses until your customers decide to pay you.
And a cash flow gap can have a lot of negative impact on your company. Not having the funds to pay your vendors on time could jeopardize your ability to order from them again, or disqualify you for any early-payment discounts. If you’ve got employees, you run the risk of not being able to pay them on payday (which, likely, could cause them to start looking for another job). All in all, having any disruption in your cash flow can cause serious headaches and concerns.
If these common cash flow gaps sound familiar, read on to get a remedy.
Your Clients Pay You Late
You know you’ve got plenty of receivables coming in, but the problem is: some of your clients consistently drag their feet in paying their invoices. You start to panic, because you’ve got your own due dates for your company’s bills. You don’t want to come off as desperate and demand payment, so how can you handle it?
There are a few simple strategies you can employ to get clients back on track and paying invoices on time (or even early). First, make sure your invoice due dates are clearly marked so there’s no opportunity for clients to claim they didn’t know the invoice was due.
Then, if that doesn’t work, try offering a discount for early payment. Everyone likes saving money, so that might be motivation to get them to whip out their credit cards. Barring that, charge a late fee for payments after a certain date. If nothing works, talk to your late payers individually to see if there’s a reason they’re paying late. They might be having financial issues themselves and need you to work out a payment plan with them for now.
You Buy Inventory Before Selling It
If you sell physical products, you naturally have to invest in your inventory and then sell it. But there are often weeks, if not months, between those two events, so your bank account may get pretty hungry during that period.
Try to be more strategic with your orders. If your supplier offers a discount on products you commonly buy during a particular month, plan ahead and order then. You can also ask for a discount for ordering in bulk, or even shop around to find a lower-priced vendor.
If you’re shelling out more than you can afford at once for your stock, try ordering fewer products more frequently to better tie it to your cash flow. You may pay more per item, but you’ll at least have a better handle on your money.
There’s No Money Left After You Pay Yourself
While you’ve had it drilled into your head that you need to pay yourself first, sometimes that tilts the whole cash flow equation. You’ve got to pay your own personal expenses, but what happens when that leaves no money to grow your business through marketing? Or to hire help? There’s a delicate balance between taking money out of your company and reinvesting it for your brand’s growth.
The best solution here is to pay yourself a modest salary. It shouldn’t be your entire income, since that will cause a cash crunch. You can also take a disbursement from the company once you’ve paid all your expenses and put money back into the growth of the company. That disbursement amount may vary from month to month, based on sales.
Then, set aside a percent of your profits each month. These will help cover rainy day expenses, as well as allow you to invest in tools that will take your business to the next level, like marketing software or advertising. Even if you’re just socking away $100 a month, it’ll add up, and in a few months, you’ll be able to put that money to good use.
The Bills are Mounting
Especially when you first start a business, there are a lot of bills to pay. Office rent. Utilities. Materials. Employees. If you’re Type A, you probably want to pay them and get them off of your plate as soon as they come in. The problem is: without enough padding in your bank account, you stress over those expenses.
Strategy is key here. Prioritize your stack of bills by due date, and pay each one as close to the due date as possible. If there are any vendors or service companies that will charge you a late fee if you miss that due date, move paying them to the top of your to-do list.
If you yourself need to make payment arrangements, let your vendor know as soon as possible. Burying your head in the sand will only make matters worse, and can ruin a good client/vendor relationship. On the other hand, simply asking for help can make your supplier willing to accommodate.
One Solution for All Cash Flow Gaps
Whatever the cause of your cash flow woes, getting working capital is one easy fix. If you’ve never gotten financing for your business before, you might assume that you have to get a loan for $50,000, and that might be way more than you need. Working capital loans can be pretty small — as low as $2,000 — and are designed to simply help you get across that gap.
If you need $5,000 to pay your supplier until you can sell your stock, you can get that as a loan. If you need more to hire part-time help, you can get it. Kabbage looks at your sales history and bases your eligibility for financing on it. There’s no lengthy bank application to fill out, and you find out in minutes how much you qualify to borrow.
Ready to close that cash gap? See how much money you qualify for today.