Manage Cash Flows for Timely Loan Payments

Manage Cash Flows

When we hear cash is king, it is true. For small business owners, having a grip on their cash holdings can be critical to future growth and success. No matter how good your balance sheet or income statement looks, if the cash at hand and cash at the bank isn’t showing prominent signs of growth, it can lead to potential bankruptcy. Businesses that don’t excel in handling their cash might find it harder down the line to receive loans because confidence in their ability to repay them would not exist.

Hence, becoming a master for managing cash flow can serve long-term growth in an unexpected fashion. Here we will look at ways of managing cash flows for prompt and timely recovery of small business loans, and how it can increase confidence in business operations.

What Is Cash Flow?

Cash flow is the net amount of cash and cash equivalents being transferred into and out of a business. Cash received represents inflows, while money spent represents outflows.

Be Forward-Looking

Anticipating future needs in advance can be a trait of a good leader. To make a timely future prediction, it is important to be aware of the economic patterns that the business operates in. Understanding inflation and interest rates can give an idea of how future prices will increase or decrease.

This leads to an optimal assessment of both sales demand, and cost of production. This also forms the basis of the working capital component, where a business owner may assess how much cash they are left with after all expenses are paid for. If there is going to be a shortfall, working capital loans can be sought, and future funding gaps can be reduced.

A business line of credit is a good insurance policy against cash flow problems. You may be able to get a line of credit for a percentage of your accounts receivable or inventory if you use them as collateral.

Be Aware of Account Payables and Receivables

Your lender will always be interested in who you pay first. If you have a host of loans, overdrafts, and standing orders pending, they might be reluctant to forward you any new cash. Therefore, keeping an eye on account receivables and payables can be helpful. A strong accounts payable record and account receivables can help get an unsecured business line of credit with ease.

Stay on top of invoicing, and send invoices when the work’s completed or products are delivered—Don’t wait? This means when you have low payables, you will be able to fulfill interest payment commitments made when securing a loan. If there are high receivables and much of it is credit sales, a lender may advise seeking a merchant cash advance finance. This works like a factor, giving you access to quick funds, in return for your future credit sales.

Time Your Loans and Payables

A small business may have a variety of payables at hand. This may include interest payments, lease payments, salaries, and payments to suppliers. A small business owner when seeking small business funding should time their payment cycle to address cash deficiencies.it can be done by knowing what component to be paid by cash, and what will be serviced by a loan. Usually, contractual payments and salaries are paid by an unsecured business line of credit or a working capital loan. 

One of the best cash flow management tips is to reduce expenses that are not important. Investing in office supplies and unwanted renovations might be one such expense. Small businesses can also seek long-term credit of their own to reduce prompt payment, while they can provide discounts to customers to reduce credit sales. All this helps reduce borrowing and the overall interest due, leaving a big chunk of cash for loan repayment and expansion.