As a small business owner you've probably run into this scenario: you pay your suppliers in 30 days but your customer pay you in 60 days. Sounds familiar? If it does you probably have a cash flow "gap" to fill. That's when some form of working capital financing comes into play.
Even when both supplier's and customer's terms match, there is always a chance of running into gaps or delays. Think of the time an expense needs to be paid and when the revenue that such expense generated gets collected. There is a high chance that your business has some sort of need to finance gaps between inflows and outflows.
Working capital financing can come in the form of cash from the business itself through shareholder loans, term loans, factoring of accounts receivable, inventory financing, and so on, but it's important to keep in mind that the financing of a cash flow gap is meant to be temporary in nature and acts as bridge financing where the beginning and the end of a cash flow gap is pre-established.
One way to increase the cash flow gap (meaning not o good) is taking advantage of early payment discounts from suppliers, but this may be worth doing if you have the working capital available and the cost of the working capital is less than the discount you will receive for paying early.
The more you can forecast out your cash flow into the future, the better, especially if you’re in the growth stage, so make sure you understand when cash flow gaps will occur, how much capital they will require, and how long they will last. If you’re going to require more capital than you now have available, you’re going to need enough time to secure working capital prior to the period of need.
If you would like to learn more about LendrzHub's working capital program, or any other loan program contact us today at (855) 262-2996 or email us at firstname.lastname@example.org where we will be happy to help you secure the funds your business needs.