Getting Creative With Cash Flow

by Jeff Wright

Cash is the life blood of any business. Without it, organizations are sure to struggle. Sometimes even a good business fails by ignoring the ledger balance, yet a poorly run company with sufficient cash somehow continues to operate. So, how does a business maintain sufficient cash flow?

Maintaining a positive net income is important, but doesn’t equate to cash flow. Apart from raising capital from investors or lenders, there are ways to increase cash flow even at your current net income.

Take Advantage of Early Pay Programs

This concept is known as supply chain finance, and may be available if you sell to a large company with excellent credit. Many such companies have partnered with lenders that will pay your invoices immediately. These early pay programs have a cost, known as a discount, which is much lower than most companies can borrow money. Early pay programs are a low cost option that can accelerate your cash flow on sales to those specific customers by 90 to 180 days, depending on the payment terms. Once they’re set up, early pay programs are very easy to use.

Customer Advances

When customers have a very strong interest in your product or service, they may be willing to advance funds to ensure that you can fill their orders. I see this offered periodically. Although this arrangement is not preferable for the customer, they may do so if they see enough value and understand the need.  Normally there are no restrictive loan agreements and no interest is charged.

Outsource Your Workforce

The contract staffing industry is extremely competitive. These firms commonly offer payment terms of 30 to 60 days. This averages 45 days of full payroll funding, including taxes. For labor intensive businesses, invoice factoring can be a huge source of cash flow.

Negotiate Payment Terms With Customers and Suppliers

This is similar to customer advances because it’s dependent upon the customer or supplier seeing enough value to offer favorable terms. This means a quicker pay cycle from customers and a slower pay cycle to suppliers. Working both sides of the equation ensures that no stones are left unturned. Don’t be apprehensive to ask. Your partners will see that you are savvy. They will understand that you run your business efficiently and aren’t passing along excessive costs.

Leverage Assets That Have Equity

The purchase of equipment or real property has depleted your cash position. Refinancing these assets replenishes these funds. However, since there will be interest on this new loan, along with monthly principal payments, careful consideration should be given to ensure that enough profits are generated to truly increase cash flow.

Utilize R&D Tax Credits

In 2015 and again in 2017, provisions in the tax code substantially increased the scope and value of these credits. As nearly all companies wrestle with technological change, R&D tax credits are vastly underutilized. A well regarded CPA mentioned to me that he spends a majority of his time working with his clients to make use of this. Despite the lowering of the corporate tax rate, this credit actually has greater value than it did before. It is clearly here to stay, and can be a source of cash for you.

Being preoccupied with the ever increasing demands of running your business, you may not think of these opportunities to improve cash flow.  I hope that these thoughts will ensure that your business remains healthy for the long term.

About Hitachi Business Finance

Hitachi Business Finance exists to support the working capital financing needs of growing businesses. We leverage accounts receivable, inventory, and equipment to replenish cash that’s been invested in growth. We help our clients anticipate their financing needs so a lack of capital doesn’t derail their growth.

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