Long-term, debt and equity financing, as well as liberal cash flow, can be the best options for working capital acquisition. However, not all of these options may be available to every business. There are many other options available for business owners to ensure cash flow management. Randall Castillo Ortega, the founder of SME backer RACO Investment in Costa Rica and Panama, shares top tips to ensure cash flows are always available.
A deposit or milestone payment is a great option for organizations whose products and services require significant cash or effort to realize. Although some clients might be reluctant to pay these types of payments due to their sensitive nature, it is possible to incorporate them into your company’s policies and make the process easier.
You can also encourage clients to pay faster by using different methods to monitor income. Castillo says, “Offer your clients a discount if you make their payments earlier.” For example, you could tell your customers that they will get a discount of 2% if they pay within ten days. This is a tempting suggestion for any company as it can offer substantial savings over the long term.
Vendors are motivated to help customers buy. Two additional weeks can mean the difference between employees being paid on time and expanding. If you are able to request payment extensions, it is possible to extend payments. For example, if the payment terms are for 15 days, you can push them to 30 days. Some vendors may not be able to accommodate your request.
Everything should be available when money is tight. This applies especially to idle equipment that can either be sold or rented to an organization that needs it. It is possible to lease the hardware to another organization and rent equipment that does not impact the bottom line, regardless of whether it is being used.
A merchant cash advance is an excellent option for almost all consumer businesses. Castillo explains, “This option will allow the business to get a loan that is automatically paid through a percentage of the debit or credit card transactions volume. This option can be very simple to get if the business has a strong transaction record.
It is obvious that increasing margins are one of the best ways for a company to make more money. It may not be possible to do this every time, but it is something that should be considered, especially if the product or service is in high demand. This will allow you to increase your margin by increasing prices or decreasing costs. However, it could cause friction with clients, so make sure you carefully consider this option before proceeding.
Factoring or invoice selling, also known as discounting or invoice selling, is a flexible and efficient way for business-to-business businesses to raise funds. Invoices can be considered company assets. The product or service has been delivered, but funds are not available until the invoice has been paid. Receiving certain payments can take time because terms can be up to 60-days. To receive payment immediately, a company may offer to sell its invoice to a factoring firm. Once the invoice has been paid in full, the factoring company will receive the funds.
Castillo asserts that any combination of the above techniques could be a viable solution for your business. Still, it is important to carefully consider each option before you make a decision. Understanding which option is best for you will help you manage your capital better to grow your business.