Maintaining healthy cash flow is vital for any business, however, in times of economic uncertainty, managing cash flow becomes even more critical. When facing cash flow constraints, businesses have two main avenues for obtaining extra funds: internally and externally. In this blog, we will discuss potential opportunities for cash flow relief within the organization and explore external sources for additional financial support.
Internal Cash Flow Relief Options
1. Debtors Book Management: Should you be efficiently managing outstanding payments from customers, this can significantly boost cash flow. Timely follow-ups and credit control measures can encourage debtors to pay promptly.
2. Supplier Settlement Discounts: Negotiating favorable settlement terms with suppliers can lead to discounts on purchases. This can help save costs and free up cash by reducing the overall payables burden.
3. Cost Optimization: Businesses should focus on recurring cost reductions, rather than one-off cuts as this will accumulate substantial benefits over time.
External Cash Flow Relief Options
1. Bank Financing:
Overdraft facilities can offer a short-term cash flow buffer by either obtaining an overdraft or increasing the current overdraft.
Asset finance allows refinancing existing debt-free assets for cash injection however this can be a challenge than purchasing new and applying for asset finance upfront. Bank’s don’t really like to finance assets that are purchased or already in use. When you looking to purchase an asset, rather purchase upfront compared to paying in installments which will affect your monthly cashflow.
Term debt (working capital facility) provides more extended repayment options.
Invoice Discounting and Debtor Financing: Invoice discounting allows businesses to receive immediate payment for invoices from specific clients. Generally this will relate to bluechip clients, clients such as Spar or Massmart. Debtor financing leverages the value of the entire debtors book to secure a line of credit.
2. Trade Finance:
For example, if you are in the importing business, they will assist with paying off foreign suppliers for you. They normally give you an extension of 90-100 days to settle.
Some advance term debt and/or a discounted invoice facility however the rate is often higher than that of the banks.
3. Equity Funding:
As the most expensive option, equity funding involves bringing on board new shareholders or investors. It can be a viable solution for businesses with growth potential but requires careful consideration of implications. This will also require the business being valued, and as the business is facing financial challenges, this will mean the business will be under valued. Should you be considering this, contact My Finance Partner for some guidance.
Maintaining a healthy cash flow is essential for the financial stability and growth of any business. When facing cash flow constraints, exploring both internal and external options is crucial.
Any further questions, please feel free to contact My Finance Partner today. info@mfpartner.co.za