Cash flow interruptions are frustrating, time consuming, and expensive problems that every business struggles with to some degree. Unexpected costs and late payments are common problems, and become more common as a business grows and becomes more complex, and as it works with more and more clients. Because of this, managing cash flow perfectly—so that working capital is always on hand when it’s needed, but isn’t left simply sitting around—is virtually impossible. Businesses are inevitably left short on working capital, and are forced to scramble for solutions by reshuffling budgets, chasing late payments, or cutting funding somewhere else.
Fortunately, it doesn’t have to be that way. To minimise the impacts that cash flow interruptions can have, businesses need fast access to flexible financing. By using tools like invoice financing and supply chain finance, they can get the funds they need almost instantly, eliminating the need for more disruptive action.
Cash flow interruptions are expensive
Businesses pay for cash flow interruptions in more than one way. As a direct consequence, a temporary lack of liquidity can prevent a business from operating efficiently in the near term. It could delay the hiring of much-needed talent, or the replacement of outdated equipment.
At the same time, reorganising spending to deal with a shortfall inevitably means that the work of some employees will go to waste. Marketing campaigns, recruitment drives, and other projects that are cancelled to free up funds for more vital concerns inevitably result in sunk costs. Once they can be funded again, much of the work will need to be redone. The most significant cost, however, is the opportunity cost of the time business leaders spend dealing with cash flow problems.
Business leaders need to prioritise their time
Businesses rely on their leaders to look outward, and to prepare them for the future. That means building relationships with investors and the rest of the industry, determining how best to compete, and developing a growth strategy. While small business owners might be able to spend some of their time chasing down late payments or changing budgets around, larger organisations need leaders to focus on the bigger picture. The more time a business’ leaders spend on internal issues, the less time they have to lead the business.
Continuously rewriting a budget as a way to manage cash flow comes at the cost of the business’ future. That’s what makes fast and flexible financing solutions essential to any business’ long term success. It not only helps businesses to avoid the direct inconvenience and cost of a cash flow interruption, it also clears critical time in the schedules of business leaders that allows them to focus on the bigger picture, and to guide the company forward.
Applying flexible financing to manage cash flow
There are a range of different financing solutions available to businesses, however two are particularly useful when it comes to managing cash flow issues. Supply chain finance and invoice finance allow businesses to consolidate funds, by holding on to existing working capital longer, and bringing in outstanding payments sooner. This allows them to access the liquidity they need without the use of debt.
Supply chain finance
When using supply chain finance, a business is working with a financier to extend payment to a supplier on their behalf. The financier then makes payment to the supplier, while allowing the business to defer its own payment by up to 90 days. This extends the business’ payment terms, while still ensuring that the supplier is paid on time. Moreover, the supplier can request to be paid early in exchange for a discount on their invoice.
The result is that suppliers can be paid sooner, while procurers can hold on to their working capital longer. Until that payment comes due, the business is free to repurpose the working capital that would have been used on the supply payment to manage other costs.
Invoice finance allows businesses to pay themselves an advance. To finance an outstanding invoice, they simply trade it in for an upfront payment. The financial institution accepting the invoice will issue most of the funds immediately—often within hours—providing the business with almost instant liquidity. Then, once the invoice is due, the financier will receive payment from the customer before paying out the remaining amount, minus their fee.
These financing tools allow businesses to avoid the consequences of a cash flow interruption before it can actually cause damage. While some effort might still be needed to chase down late payments, corners don’t need to be cut, budgets don’t need to be reorganised, and projects don’t need to be cancelled. Most importantly, business leaders don’t have to spend their time managing daily financial concerns, allowing them to focus on the future and to lead.