Want To Finance Working Capital? Here’s Your Sources Of Cash Flow Financing

Updated: March 09, 2011

As we head into the 2011 business year we're clearly coming out of a time when for many firms such as yours sales were down, margins eroded, and most importantly cash flow financing seemed to dictate where your firm was heading from a success point of view. So how can you assess how profits and growth can be managed from a viewpoint of cash flow financing.

The answer - your scorecard! What do we mean by that? Simply speaking knowing where your working capital is tied up, and what is the cheapest method of unlocking sources to cash flow financing. And, although it's a surprise to our clients more often than not, 'cheapest' doesn't necessarily mean ‘whats my interest rate'.

Can you point to your working capital? We can. It's tied up out back, in the form of inventory, receivables and equipment you've invested in, via fixed assets.

So business owners can hopefully start to see now that the secret or ‘holy grail' to that unlocking of cash flow is freeing up cash you've got tied up in those assets. We will point out as a side note that you also have to manage those assets for prompt turnover - that comes with billing promptly, collecting receivables when they are due, and ensuring you have financing mechanisms in place, if you need them, for inventory and equipment.

Many business owners don't realize that the inventory and equipment can be turned into sources of working capital. Those two assets can be combined as a part of a working capital operating facility, which for larger transactions is known as an asset based line of credit .

The hallmark of being able to finance working capital, more often than not, is managing your receivables. We can categorically say that although the majority of clients have 30 day terms to customer's typical collection periods actually seem to be 60 and, yes, even 90 days.

How can you monetize that critical asset? In a perfect world (by the way its not) you access receivable financing via your bank. That comes with obligations though, including your need to maintain clean financials, show a profit, and meet ratios and covenants. So it's agreed. What's plan B!

Plan B can also bring you closer to finance working capital solutions. Plan B could involves the following - securitizing your receivables if you are a mediums size or larger firm. Smaller firms and start ups and monetize A/R via selling their receivables, taking them off the balance sheet, and receiving cash flow today that can be re invested in the business. Terms for this type of financing are invoice discounting, factoring, confidential invoice discounting, etc. If your firm has decent gross margins, good clients, and can you're able to increase sales and profits by having additional cash on hand these solutions are for you.

Featured Research
  • Contact Center Implementation 101

    Starting, maintaining and growing a successful business is largely dependent on great products and services. That said, there’s another important factor many eager entrepreneurs overlook…customer experience. more

  • The New 2017 Contact Center Comparison Guide

    We’ve put together a comparison guide that covers over 40 of the top call center software options, providing details on pricing, features, support, and integrations. If you want to save time and still make a great investment, this guide is a must read. more

  • Phone Systems Comparison Guide: VoIP for Small to Midsize Businesses

    It was a painstaking process, but to help B2B companies start 2017 off on the right foot, we recently compiled a comparative list of the top 43 small to midsize business phone vendors. more

  • 16 Mistakes to Avoid When Buying a Phone System

    Purchasing a phone system for your business is a major investment. With the average business changing phone systems only once every seven years, it’s important to make the right decision. more

  • 2017 Video Conferencing Trends

    New advancements are also making video more beneficial to a greater range of business areas including marketing, HR, and internal operations. Many solutions are economical, easy to use, and very effective at making communication more personal. more