Businesses run into cash flow problems for a wide variety of reasons, from late client-payments, to poor budgeting, to growing pains and other issues. Knowing which financial solutions are the right choice to employ for each kind of complication can make an enormous difference in your business’ long-term financial stability.

Debtor financing

Let’s take a look at a few general types of cash flow challenges that many SMEs deal with, and what you can do to help make up the difference in any given situation.

Client-side problems

An issue that plagues tiny proprietorships as much as it does much larger businesses is finding a way to deal with late client payments. Sometimes customers might just be late, other times they might try to simply avoid paying altogether. Getting the payment you’re entitled to often requires persistence, time, and sometimes expensive litigation. Fortunately, you don’t necessarily have to tackle those problems yourself if you don’t feel that it’s a good use of your time.

If you’re struggling with income reliability in this way, you may benefit from talking to your financial representative about setting up customer payment plans or invoice financing, depending on what’s more appropriate for your type of project. Both of these types of financing effectively sell the customer’s debt to your financial institution in exchange for an upfront payment. You get paid right away, and your financial institution does the work of collecting payment from the client without your further involvement. While neither of these services are free, they also save a lot of time and money by eliminating the need for endless follow-up calls and lawyers, and by stabilising your revenue streams so that you know exactly what you have to work with.

Spending hangovers

Startups that go through an early growth spurt often rush to expand their operations very rapidly, on the misguided assumption that rapid growth in one quarter translates to rapid growth in every quarter. Because of this, they often over-prepare and run into cash flow issues as a result. Equipment that isn’t being used, employees that aren’t working at their full capacity, and empty floor space that you pay rent on every month can quickly become unsustainable if the growth you expected doesn’t occur. Not only is this very expensive to deal with, it also ties up funds that could be used to help drive the growth that you’re waiting for.

Recovering from an overreach like this is difficult, but it can be done. Besides cutting as many of these extra unproductive costs as possible, you’ll need to do your best to get the financing you need to cover existing bills. This is an appropriate situation for dipping into a business line of credit, or for taking out a business loan to cover the difference in the near term. However, you’ll need to be extra careful to ensure that you don’t overextend yourself on the financing as well.

Some entrepreneurs might be tempted to instead attempt to funnel additional financing into sales and marketing in the hopes of generating the demand needed to validate their earlier spending choices. This is extremely risky. The much safer choice is to consolidate your finances and to try to pursue a more demand-driven growth model.

Growing pains

Even businesses that are essentially doing everything right are going to occasionally suffer from growing pains. Cash flow problems related to growing pains are not about being able to support your existing operation, but rather about being able to accommodate rapid growth.

A relatively small online merchant might work with a variety of small clients for its first few years, and then quite suddenly land a much larger customer who could require them to drastically increase their capacities. They’d need to hire more staff, acquire new equipment, buy additional stock, and possibly move the business to get the space they need to work. All of these things cost an enormous amount of money up front, and that investment will usually take a while to recover, even for a very lucrative contract.

To make sure that you can take advantage of growth opportunities like this, there are a variety of good short-term financing options available to you. These types of loans are a great solution in this kind of situation, because you can already calculate fairly easily how long it’ll take to pay off any loans and to recover your investment.

Stock loans are a simple and specialised way to deal with a stock shortage without securing the loan against your own assets. A business line of credit, or a regular business loan are also a great choice for more flexible funds that can be applied in whatever way the borrower sees fit.

Of course there are many other things that could cause financial hiccups in your organisation. No matter what your trouble is, our expert representatives at Fifo Capital are here to help you find the right cash flow solutions for your business. Give us a call today, and we’ll be more than happy to talk about your situation.