Managing cash shortfalls

There will be at least one time that your business will experience some cash shortfalls. This situation will put your business in a difficult position because you may not have the money to pay your bills. For some business, cash shortfalls arise due to poor bookkeeping. Others run into problems because of downturns in the market. Whatever the situation may be, you need to understand how to manage cash shortfalls properly.

Lenders will be hesitant to release funds to a company that is already in financial difficulty. Lenders do not want to give money to a company that seems desperate for the funds, if you have demonstrated proper cash flow management; they will lend it to you months before you start to notice cash shortfalls.

Failure to plan for difficult times is normally why most companies experience cash flow problems. If you can predict when the market will turn sour, you can arrange for a line of credit to keep your cash flow at a good level while you wait for the market to return. This can help you determine exactly how much money you need before you reach desperation mode.

Another way to manage cash shortfalls is to speak with your suppliers. Since lenders are hesitant to help out a company when it is struggling, the suppliers are often the last resort because they need you to stay in business so they can stay in business also. Quite often businesses with cash shortfalls can receive a loan from their supplier to pay for their overdue bills. The amount of interest you pay will be significantly higher from a bank loan, but the supplier will receive all of their money back, plus interest. This is the easiest way to stay on good terms with your suppliers and to re-gain control of your cash flow.

Good customers can also help your business manage cash shortfalls. Ask your customers to accelerate their payments, especially on larger orders. Require that your customers start paying at least half of the invoice at the time the order is processed and the other half within 30 days. If you struggle to collect on older invoices, hire a factoring company. You will receive around 85 percent of the total amount of the invoice, but you don't have to worry about collecting the money. The factoring company will buy the invoices from you and then deal with the customers that are not paying their bills. This can eliminate cash shortfalls because you receive money today, not 90 days from now.

Consider leasing your equipment instead of purchasing it. Leasing companies will charge low fees to completely furnish your office and provide you with top-of-the-line equipment for a fraction of the price. For companies that desperately need new computers and other equipment, leasing is the ideal solution. The catch to leasing is that you could lose your entire business if you fall behind on payments. Some companies have a 15-day forgiveness policy, but most require timely payments.

Finally, make a list of all the payments you need to make each month. Place them in order of most-important to least important. Always make all of your monthly payments, even if you can only pay the minimum. Make sure your payroll comes first and then pay your crucial suppliers. Contact the rest of your suppliers and ask them if you can pay your bills a few days late or if you can work out a different payment structure. Contacting your suppliers and lenders before you fall behind will improve your chances of getting a lower payment or to skip a payment for a month.