Invoice Factoring

What Your Business Can Learn From Tesla’s Cash Flow Troubles

Tesla navigating negative cash flow

As Bloomberg columnists Hull and Recht declared earlier this year, no one on the planet has raised or spent money the way Elon Musk has. Back in April, they predicted that Tesla could even run out of cash by the end of this year. Hopefully your own cash flow situation isn’t that dire. But if you occasionally or even frequently experience negative cash flow, you’re not alone.

Across all industries, owners struggle to keep a steady flow of cash coming into the business in order to meet their payroll, inventory, and other financial obligations.

The cash flow crunch affects some types of companies more than others. In construction, for example, a recent Tsheets by Quickbooks survey found that 87% of construction companies experience cash flow problems. Of those, 47.4% experience negative cash flow monthly to quarterly. For 18.6% of these companies, cash flow is a constant problem.

construction cash flow problems

How often does your [construction] business experience a cash flow problem?

Source: Tsheets (Quickbooks)

Stop beating yourself up over your cash flow woes! It’s a common misconception that gaps in cash flow are caused by poor financial management or a lack of business planning. Even massive brands like Tesla run into trouble. In fact, these major companies have all experienced cash flow issues recently:

    • General Electric has been forced to sell off parts of its business recently, as mounting debt and reduced operational revenue contribute to a cash flow crisis.
    • Netflix reported nearly negative cash flow of $560 million in Q2 2018 as it poured funds into new content creation, amidst questions about its content accounting practices.
  • African phone giant MTN may be headed into a cash flow crunch after being ordered to pay $10 billion in taxes and dividends the government says it should not have taken home.

So you see, if you’re having cash flow issues despite running a business that’s profitable based on operational or investment revenue, you’re not alone. In fact, I’d say you’re in some pretty great company.

Of course, it’s not the company you want to keep. Developing a proactive strategy to prevent gaps in cash flow will keep you out of crisis in the first place. This article is going to focus on the financing options that your business can use to either mitigate negative cash flow or use if it’s currently experiencing negative cash flow. For general best practices that your business can follow to stay cash flow positive, check out the How to Manage Your Business Cash Flow and Work to Become Cash Flow Positive section of Fundera’s guide to getting your business to be cash flow positive.

Which Types of Alternative Financing Are Available to Small Businesses?

If you’re like most small businesses, bank loans aren’t a viable option for solving cash flow issues. Half of low-risk startup financing applicants are denied funding due to insufficient credit history (another 19% of low-risk startup applicants and 12% of all startup applicants aren’t even sure why they were denied funding). Remember, those are low-risk companies. By the time you’re experiencing cash flow issues, you’re already too risky for the banks.

What tools and financing methods are available to you as a small business experiencing cash flow issues? It’s important that you get these lined up now, so they’re available to you when you need them:

    • Crowdfunding: an option for ‘sexier’ objectives like launching innovative new products; not ideal for ongoing cash flow management. Beware the low success rate.
    • Peer-to-Peer (P2P) Lending: directly borrow funds from multiple investors, typically through a P2P platform. Look for a solution to match you with suitable lenders.
    • Line of Credit: can be easier to obtain than a term loan and enables you to pay interest only on the amount borrowed. May require a security against your personal property.
    • Merchant Cash Advance: operates in much the same way as personal payday loans, advancing funds against a portion of future debit or credit card sales.
  • Invoice Factoring: avoid creating new debt by funding your invoices, making money you’ve already earned available faster.

We’re going to dig into that last option, invoice factoring, a little deeper. Invoice factoring (or funding) advances funds you’ve already earned. Your ability to secure funding is based on the value of an asset–your accounts receivable–rather than your personal or small business credit-worthiness. 

It’s a financing tactic that’s been used for hundreds of years, but invoice factoring was typically expensive to use. What’s more, you had to live near an invoice factor or travel to find one. Throughout the 20th century, invoice factors were pretty similar to the payday loans companies we have today–they charged high fees for their service, and were typically a last resort.

At FundThrough, we’ve used technology to resolve those problematic issues in how traditional invoice factoring worked.

You can set up your account online in a couple of minutes, and there’s no credit check or lengthy interview process to endure. Within days, you’ll have an initial funding limit approved and can start funding invoices. When you fund an invoice, we calculate a simple 0.5% fee on top of the amount you’re funding each week. Repayment takes place over 12 weeks, or you can choose to repay early.

That’s it–no interest, no hidden fees.

For best results and to ensure that you always have an avenue of financing open to you when a cash flow gap looms on the horizon, get these cash flow tools in order today. They’re a critical part of your cash flow strategy (which should also include a regular schedule of cash flow forecasting, analysis and budgeting–learn more about that here).

Now let’s have a quick look at who invoice factoring can help.

Which Industries Benefit Most from Invoice Factoring?

As we learned above, even the most massive companies face cash flow issues. One of the main reasons for this is late payments from other companies. You want to be able to offer flexible payment terms to your customers but have to be able to pay your own bills.

Like construction companies, mining and oil & gas firms may face extremely long invoice payment terms and frequently late payments. Throughout the supply chain on major construction and extraction projects, waiting on payments is a challenge that can prevent a company from moving on to the next project.

This goes far beyond construction, though; the frustration and stress of waiting on payment is near-universal. In addition to the payroll havoc they can cause, late payments also:

    • prevent retailers from purchasing inventory;
    • cripple CPG companies’ ability to enter new markets or launch new products;
    • keep service firms such as cleaning companies and temp agencies from bringing on new talent to staff new contracts;
    • eliminate potential cost savings and efficiencies software firms could enjoy with faster development cycles
  • pigeon-holes manufacturers into fulfilling orders only up to a certain size, preventing their growth.

Invoice factoring is a flexible, low-cost cash flow tool that belongs in every type of company’s financial planning arsenal. Sign up for your free FundThrough account today, and we can be there for you when you need us.

Want to learn more? Dig into The Ultimate Invoice Factoring Guide to learn more about the financing options available to help you start, maintain and grow your business.

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