One of the most common reasons, a small business owner approach us is because they are stressed out about the cash flow in their business.
In many instances, owners have approached their bank first and have been offered anything from an overdraft, business credit cards, invoice finance or trade finance.
We know not all finance facilities when it comes to funding cash flow are created equal and when it comes to looking at the differences not all banks are equal either!
The solution to the stress and strain on cash flow may not 100% solved by the introduction of a debt limit. In fact, we see too often a debt facility that is not matched to the business’s needs correctly, can end up doing more harm than good as “core debt” builds up and interest costs increase, making the cash problem worse over time and not better… and you guessed it adding more stress!
To unpack this a bit further, let’s review the different elements of working capital. Essentially, it is the funds or capital required to run the day to day activities of the business.
The cash flow cycle of a business is where we look to find out where funding gaps may exist. In its most simplistic form, the cash flow cycle is the time taken between the following activities:
1) Purchase by business (Creditors)
2) Goods/services received by business
3) Sale made/invoice issued to business customer (Debtors)
4) Cash received from customer
There may be variations to this depending on the type and industry of business. For example, a service business cash flow cycle, where they may have very little in the way of purchase or stock, but more time with cash locked away with work in progress.
These differences in businesses are exactly where a “one size fits all” solution can do more harm than good.
We have recently helped a client that imports goods and wholesales clear ATO debt but once we solved that problem we got right to work on finding the right ongoing funding solution to permanently remove their cash flow stress.
For them, the biggest drain on their cash flow was the time taken from payment for stock to the receipt of stock which could be up to 90 days.
However, their bank has recently put in place a Debtor Finance facility as the solution. this facility helps them fund their invoices from customers. The problem was this part of the cash flow cycle was being proactively managed by the owners and mots of their clients were paying withing 30 days.
So why was it offered, basically it was the banks preferred option not the client as it allowed the bank to have a foot over the cash coming into the business.
Following a quick review of their situation, we discovered that a more suitable solution would be to get a a small term loan to clear out their ATO debt and then we worked to obtain a smaller overdrafts that allowed them to funded the purchase of stock, essentially freeing up their biggest cash flow strain between purchase and sale.
In short, finance for cash flow can be complex but it need not be as stressful as some banks will make it. This is our specialty and we are enjoying helping our clients grow, by offering advice and tailored solutions.
EZ Business Loans and Provident Lending and Business Solutions are linked businesses, and this give us the edge over others when working with businesses who need quick access to cash to solve and immediate problem, but also the expertise to work through and help solve the ongoing cash flow issues.
For more information contact info@ezbusinessloans.com.au or call (08) 6201 0143
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