Businesses big and small use a variety of cash flow strategies, such as getting advances on invoices, requiring advance deposits, and more. Going the more traditional route and applying for a bank loan may seem smarter, especially today with many of the big banks increasing their small business outreach and lending options.
However, if your small business were to find itself in a sudden cash crunch, a bank’s extended loan approval process could leave you unable to pay creditors and employees or buy needed inventory. Small business owners need to think creatively to keep their cash flowing.
8 Small Business Loan Alternatives to Boost Cash Flow
Advance on Invoices
Invoice financing is a great solution when you know your invoices will eventually get paid, but want the cash flow sooner. Fundbox advances the full value of your invoices, tacking on a small clearing fee when you pay the advance back over 12 weeks. That way, the funds are in your working capital account, instead of in your customer’s. If your company can pay back the advance on invoices before the 12 weeks are up, Fundbox will waive the remaining fees with no prepayment penalty.
Deposits and Partial Payments
Before starting any work, asking for a hefty down on large orders is a smart way to make sure you’ll get paid. Requiring a “security” deposit creates a safety net for your business, protecting it from rollercoaster economies around the world. Make sure you spell out the details of any upfront payment requirements in your contracts.
Cash on Delivery
Requiring COD payments works particularly well when you’re working with new clients—at least until they establish a history of on-time payments.
Another strategy to improve cash flow is to offer incentives for early payment. Discount the overall price by 5 to 10 percent if payment is received upfront or before the due date.
If a customer won’t put down a deposit or pay early, consider setting up some type of payment plan so some money comes in on a regular basis. Negotiate monthly payments or payments at each stage of the project or relationship.
In the case of a highly anticipated or limited release product, consider establishing a layaway plan or offer customers a presale discount. Customers are often willing to pay a premium for items they can’t get elsewhere.
You can save a lot of money by leasing equipment instead of purchasing it. Usually, lease agreements include a service contract, and you can take advantage of lower-cost upgrades when new technology is released.
Sell, sell, sell
If you own equipment that’s outdated or obsolete, put it up for sale or auction. The same holds true for older inventory: Sell it for a discount to get a quick cash injection to your working capital.