Two of the main reasons why businesses face challenges are inadequate cash reserves and business finance. Whether the business is struggling or growing, effective cash flow management is absolutely essential and the key to business survival.
There is always a lag between the time a company pays its suppliers and employees and the time it collects payments from customers, which causes issues for the business to remain operational. Once businesses have used a lot of their finances, they may experience a cash crunch that prevents them from paying suppliers, buying materials and even paying salaries, which hinders business growth and success, since most companies usually lose the trust of suppliers and employees in such situations.
SMEs Need Smart Cash Flow Management
Cashflow is basically the movement of funds in and out of your business. Cashflow is called positive when the amount of cash entering into the business from sales, accounts receivables, etc., is more than the amount of the cash leaving your business through monthly expenses, accounts payable, employee salaries, etc. In the reverse situation, the cashflow would be considered negative.
To attain a smart cash-flow management, businesses need to think beyond just their profit or loss and focus on a positive cash flow, which is key for generating profits. Companies need to have enough cash reserves available all the time to pay their employees and suppliers so that production isn’t affected. Capital Float is a FinTech lending company fulfilling the business loan requirements of SMEs in India. We offer flexible, short-term loans that you can use to purchase inventory, service new orders or optimize cash cycles. Our online application procedure simplifies the application process and lowers the time required for approval. The loan amount is disbursed within 72 hours.
As mentioned previously in this blog, achieving positive cash flows is fundamentally important to the health of the business. Here are some ways in which you can effectively manage your cash flows, leading to higher profits and business growth.
7 Practical Ways to Ensure Effective Cash Flow Management
1.Collect Receivables: There are times when every business has to extend credit to customers, particularly when they are in the growing stage. When you speed up the receipt and processing of receivables, you will experience quick input of cash, further reducing credit cycles that inevitable lead to debt.
2.Opt for Short-Term Unsecured Loans: Short-term business loans, from FinTech lenders like Capital Float, are the best solution to overcome cash flow problems and meet immediate cash requirements. Unlike traditional lending institutions, which require extensive documentation to process a loan, these lenders use technology to make financing decisions. Applicants can avail a loan amount from Rs. 1 lakh to Rs. 3 crores. If you decide to pay off the remaining balance of the loan earlier than decided, you won’t not be charged any prepayment penalty either.
3.Adopt Easy Modes of Payment: Try to get paid faster by using mobile payment solutions. Many companies, upon selling their products, provide services through which they receive payment on delivery via banking apps on smartphones or tablets with the use of a credit or debit card. In fact, businesses today are actively turning towards card payment devices, where these Point-of-Sale machines, other than offering cashless transactions, become the instruments for availing working capital finance through services like Capital’s Float Merchant Cash Advance.
4.Pay Later Finance: This financial product helps you make regular payments to replenish inventory and keep your business moving. Many a time, businessmen are presented with growth opportunities, but due to a cash crunch, they are unable to capitalize on such opportunities. Even when they try to, the informal lenders charge exorbitant rates of interest, coupled with other unreasonable demands, making it hard to borrow money from them. Pay Later is a predefined credit facility, unique to each applicant, from which the applicant can make multiple drawdowns. The facility can be restored following repayments, making the facility ready for further use. Interest is charged on the drawdowns and not the entire facility.
5.Online Seller Finance: Capital Float has partnered with the largest e-commerce platforms in the country, including Amazon, PayTM, Snapdeal, Myntra, Shopclues, eBay, etc., to help business owners access fast and flexible working capital loans for business operations in India. One of the unique features is that the loan is offered on the basis of the borrower’s monthly sales and projected revenue We use cutting-edge tech-integration, Big Data and decision sciences to assess the borrower’s business.
6.Discounts on Early Payments: Your profit margin might be effected when you offer your customers discounts upon early payment. However, it will surely help in your business’ cash flow management. Incentivizing customers will encourage them to make payments earlier than the billing cycle, which will be advantageous for your business.
7.Increase the Company’s Sales: This is indeed the most traditional method of increasing cash flow, but it might not always work. Try to attract new customers and sell additional goods or services to your existing customers. You should remember that while new customer acquisition increases sales, selling more to existing customers is cheaper and leads you to increase your profit margin, generating more cash.