Many points of research show that as many as half of small businesses suffer from cash flow problems. In fact, the majority of small business owners cite cash flow as their number one challenge.
Why is that?
One of the major reasons small businesses run into cash flow problems is due to extending payment terms. It’s not uncommon for net 30 to routinely turn into net 60, net 90 or even worse. In fact, a recent National Federation of Independent Business study reported that 64% of small businesses reported having invoices that went unpaid for at least 60 days, and 20% said delinquencies were getting worse. When that happens, businesses are unable to enjoy the fruits of their labors for quite some time. Instead, they are forced to scramble just to keep their operation flowing.
Ask virtually any small business owner and they’ll tell you the same thing: running a company is hard. Trying to do so when cash flow stagnates is exponentially more difficult.
When the cash flow river runs dry, a small business’ ability to grow is stifled. In many situations, they may even have a hard time with daily operational expenses, including payroll and regular bills.
Business owners must be proactive when it comes to cash flow management. By doing so, they can eliminate the possibility of any cash-related surprises that might force their companies to decelerate until money becomes available.
In a perfect world, small businesses would be paid quickly for their services. Unfortunately, this is way too often not the case.
While cash flow problems are not uncommon, they are largely avoidable thanks to proper planning and forecasting, as well as innovative technologies and services designed to help businesses access the fun ds they need to successfully operate and grow.
According to the Small Business Administration, healthy companies should have somewhere between three and six months of cash reserves on hand at all times—this is a lot easier said than done, particularly when clients routinely delay paying their invoices.
Instead of simply waiting for checks to come in, an increasing number of small business owners are taking a proactive approach to cash flow management. Many of them are turning to cash flow management solutions that fund them the full value of an outstanding invoice up-front, and in turn allow them to continue running their day-to-day operation.
By using a cash flow management solution, businesses no longer have to wait around until checks come in. Instead, they are able to use the money they’re owed right away to respond to new opportunities, target new customers or grow their operations.
In addition to simply helping solve cash flow problems, cash flow management solutions provide companies with the added benefits of:
Reducing stress.Quite simply, companies need access to cash to stay in business. For many small business owners, figuring out precisely where that cash will come from can be a major stressor. Cash flow management solutions give business owners credit-on-demand and the peace of mind that comes with knowing that funds are always available.
Building stronger relationships.Cash flow management solutions free you from having to hold your breath until clients pay their bills. You won’t have to periodically nudge your customers to ask them when you can expect a check to show up in the mail. Instead, you’ll be able to offer them more favorable payment terms, cultivating stronger relationships as a result.
Paying bills.When businesses make use of this technology, they don’t have to worry about falling behind on any payments they themselves have to make. Rather, they’re able to pay their suppliers, vendors and utility bills with ease. Businesses may even be able to settle these bills quicker, taking advantage of early payment discounts.
Cash flow problems can certainly derail SMBs. The good news is that small business owners have a lot more alternative solutions today and can have control over their cash flow. By proactively managing cash flow, periodically reevaluating operations and making use of a cash flow management tool, business owners can prevent these operational problems before they take root. In doing so, funds needed to operate and grow the business will always be available and within reach.
Eyal Shinar is CEO and Founder of San Francisco-based Fundbox.