What To Do When Your Business Has Cash Flow Problems

Cash flow is important for any business regardless of size. Small businesses, though, especially rely on consistent positive cash flow to keep up with operational costs and remain profitable. Negative cash flow is one of the main reasons small businesses fail. Not only can it make meeting monthly operational costs impossible, but it can also be difficult to obtain small business financing solutions to offset expenses.

At The Commercial Finance Group, we specialize in helping businesses stabilize their cash flow through business factoring services. Keep reading to learn about some common causes of cash flow problems for small businesses, as well as how to solve them.

Common Causes Of Cash Flow Problems For Small Businesses

Bad Invoice Collecting Policies

This is one of the most common cash flow problems small business owners face. When your clients are taking the full 30 to 90 days to pay their invoices or not paying at all, it can leave your business hurting for cash while bills and employees need to be paid. Businesses want to maintain good relationships with their clients and don’t want to necessarily take legal action to collect debts, but they also need to be paid to keep their business running. Thankfully, this is one of the easiest cash flow problems to manage with invoice factoring.

Premature Investment

Owning a business can be exciting, especially when you believe that there will be a major upswing in profit just around the corner. Unfortunately, too many business owners invest in the growth of their business prematurely or spend too much in start-up expenses. This can lead to getting in over your head before the profits of your investments start showing up.

Over-Production Of Inventory

If you sell a good, you might find yourself over-producing your product. While it is good to keep an inventory stocked, you also can lose cash by footing the bill for manufacturing while your products sit in a warehouse rather than in your customers’ hands.

High Overhead Costs

When your business costs more to run than you’re making in revenue, it can quickly topple your cash flow. Everything from renting your facility to insurance to company cars to legal fees might all be necessary parts of your business, but your business model should account for these expenses while still remaining profitable.

Not Paying Attention To Expenses

Similar to high overhead costs, sometimes the day-in and day-out expenses seem small but they add up quickly. Be sure to frequently audit your expenses so you know where your money is going. This way you can make educated decisions about frivolous spending or find areas to scale back and save money throughout the course of the year.

Declining Profits

Another cause of cash flow problems for small businesses is simply declining profits. A business that was once generating more revenue than it was spending is now just breaking even or worse, losing money. When this happens, there is often a delay between recognizing lower profit margins and scaling back on expenses during which cash flow problems can arise.

Cash Flow Solutions For Small Businesses

Prevent Cash Flow Problems

Some cash flow problems are unavoidable and are just another part of running a growing business. However, there are a few steps you can take to reduce the likelihood of a devastating cash flow issue. Check out a few proactive cash flow solutions below.

Work With Good Clients

Because many cash flow issues arise from slow or late-paying invoices, ensure that you are working with a reputable client for big expenses. Ask them for references who can testify that the client you are working with has repaid their debts in full. Not only will this ensure they will pay their debts, but it will also help ensure a lower fee when working with a factoring company.

Collect And Analyze Data

While it can be easy to make business decisions based on hunches, it is important to collect and analyze data before increasing production or investments. This will help you to make an educated decision about where your money is going and whether or not it will turn a profit.

Be Proactive About Collecting Payments

Create binding policies with your B2B partners that let them know you’re serious about getting paid on time. Include a percentage-based late payment penalty and send regular payment reminders. Conversely, you can incentivize clients to pay early. For example, offer a discount for payments received within a shorter time frame.

Invoice Factoring: Your Cash Flow Solution

Factoring companies such as The Commercial Finance Group offer invoice factoring as a cash flow solution for small businesses. Unlike a small business loan that needs to be paid back, invoice factoring involves selling an asset (your invoices) at a discount (usually 1 to 5 percent) to a factoring company for a lump sum of cash. Typically, the more creditworthy the customer you are invoicing is, the lower the discount will be, meaning more cash for your business. This gives you cash on the spot and allows you to keep running your business without entering into repayment plans or waiting on a business loan. It also gives you the ability to move forward from an invoice, as your factoring company will now take over collections.

Why Work With The Commercial Finance Group

When choosing the best factoring company to work with, you need to ensure you are working with a company that is serious about your success. The Commercial Finance Group offers cash flow solutions and more than 40 years of experience. We offer business owners relief from the responsibility of collecting from late-pay, no-pay, and slow-pay clients while still recognizing that your business, your client, and ourselves are a team and maintaining business relations is important for the success of all members of the team.

Learn More About Invoice Factoring Today

Our Atlanta factoring company provides cash flow solutions nationwide so you can get the business funding you need to keep up with operational costs and grow your business. Get in touch with The Commercial Finance Group to learn more about this unique funding option and discuss whether or not it is right for your business. We are your bridge to bankability, helping you get the funding you need when traditional funding isn’t an option. Learn more about factoring today!