Wednesday, January 10, 2007

Unplanned Growth and the Cash Flow Squeeze

In The Problem With Unplanned Growth, highlights a problem encountered by many businesses ranging from start-ups to more mature businesses. A company lands a big new contract and before you can say "let's have dinner party and order a new Mercedes Benz", all hell breaks loose.

One the most common challenges resulting from this unplanned growth is the cash flow squeeze. The company must buy the raw materials and equipment, pay for workers salaries and wages, lights and the gas bill before the first dime has ever been received from the new contract. Even when the invoices have been sent to the customer, it may be 30, 60 or 90 days before your customer remits payment.

The article's author, Tim Berry, suggests that you plan in advance and make sure to contact your bank about a line of credit line on receivables. However, this may not always be a solution that is timely let alone available.

My suggestion - consider purchase order financing to cover the up-front costs of providing a product or service and factoring to generate cash flow when the accounts payable department isn't paying those invoices in a timely manner. Both these financing options can provide a fast solution to your cash flow woes when you need it the most!

Need help finding the right factor or purchase order financier? Read "Matchmaking for Business Loans" and give me a call!

Related Tags:

No comments: