Re-examine business systems to free up existing funds available to you before resorting to a loan. It may be a case of utilising assets such as debtors, stock or equipment as a possible source of funding, or simply improving your office systems to speed up customer payments. Read this article for more suggestions for solving cash flow problems.

Most small businesses experience cash flow problems from time to time and urgently need working capital. The owner's vision is too often limited to "I'll have to ask the bank" rather than considering the other options available. In fact the money you need might already be there-locked up in stock, assets or your debtors' book. Here are some suggestions to unlock those funds:

Your hidden internal sources of finance
Most business owners immediately think of the bank or loans when they're short of money. But there are many more resources you can tap before you ask for that expensive overdraft or for an overdraft extension. You can often free up funds from within your business by re-examining your business systems, and these funds might in themselves be sufficient for your immediate needs.

Good management
Even if the funds you free up from within your business are not sufficient there is another payoff: the effort you make in searching for them helps to ensure that you are running your business in an efficient manner.

To free up funds from within you business, you must look closely at:
    * assets
    * customers
    * suppliers

Assets
Your assets include debtors, stock, pre-paid expenses, vehicles, plant and equipment, fittings and property. Each of these is a possible source of funds.

Debtors
Are you letting some customers have the free use of your money for months? This is a common occurrence in small businesses where the owner(s) are so busy getting the business off the ground, products out the door, or services completed, that they don't pay enough attention to basic business procedures. Many customers will take advantage of this 'free money'. But your business is not to be a free bank.

Here's how you fix the problem:
    * Get invoices out promptly. Whatever else you do, become efficient at getting invoices out early. This is your future cash flow! You want to receive it as soon as possible. Start this new system NOW. Depending on your business, you can often cut out statements simply by printing at the bottom of the invoice: 'Please pay on this invoice as no statement will be sent.'
    * Send the invoice with the goods, and date the invoice from the day the service was completed rather than following the standard 'last day of the month' date for invoices. The earlier the invoice date, the earlier your chances of getting paid.
    * Change the terms for some of your customers, or for new customers. Can you reduce the payments terms to 7 days or 14 days from date of invoice?
    * Follow up promptly when invoices aren't paid by due date. Be polite but firm. If you haven't the time to do this yourself, then appoint someone to do it for you.
    * Establish the average age of your Accounts Receivable and set yourself the goal of reducing this age by a set target every month. If your customers or clients have been taking advantage of you because of your previous laxity in invoicing, then you may need to re-educate them. Do this politely so you don't offend customers:
      "Have you received our invoice, Peter? I'm just checking that you're happy with the goods/services we provided?"
      "We've got a new invoicing system going here, because we've been a bit lax in the past. My accountant has set some tough goals for me to meet in reducing the average age of our Accounts Receivable, so if you could settle that invoice promptly I'd be most obliged."
    * Consider factoring. This simply means selling your debtors to a finance company. So instead of having to wait 30 days or more until an invoice is paid, you receive your money upfront from the finance company who then in turn collect the money from your customer. The finance company will of course charge you a commission for this service. Be aware, though, that there are pros and cons to factoring. For example, the finance company might be quite heavy handed about collecting the debts it has bought from you and antagonise your customers. Have a talk to them first about their collection methods.
    * Consider offering a discount for prompt payment. If you're going to pay a fee for factoring, why not try offering a discount to your customers instead? Discounts are not a good option for low-margin businesses, but can be an option for high-margin operations. You have to work out whether the use of money gained earlier is worth the discount you're offering. NEVER give the discount if the person has missed the due date for the discount offer. Yes, some will try this on.