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Working Capital Management
With A Recession Looming, Do This to Boost Your Cash Flow
With the struggles of the past few years due to the COVID-19 crisis, combined with steadily rising interest rates, it looks as though we’re on the verge of another major recession. If you own a business, you might find yourself looking for proactive steps you can take to boost cash flow during a recession, so you don’t suffer the fate of so many that have shuttered their doors.
We are in the first inning of what could be the defining economic event of our lifetimes. That is a powerful thing to say for anyone who owned a business during the 2008 financial crisis.
The coming months could slow commerce to a snail’s pace due to a perfect storm of events ranging from coronavirus to falling oil prices and headwinds for the economy.
While it may not be official, NerdWallet is reporting that the United States is already in a recession, after the Bureau of Economic Analysis, an agency embedded in the U.S. Department of Commerce, said that as of July 28, 2022 the country had seen two consecutive quarters of a generally slowing economy. Meanwhile, Royal Bank of Canada (RBC) predicts that the Canadian economy is on track for a “mild recession” in 2023, due in part to GDP growth of less than 1 percent.
In Canada, variables such as real estate, jobless claims, and the delayed economic ramifications of pandemic restrictions are contributing to economic activity resulting in a slowdown and uncertainty.
To make matters worse, rising interest rates are leading to inflation numbers we haven’t seen in years — increasing the cost on everything from materials to labor, and debt financing.
It feels like we’re being hit from all sides, and there could be more bond downgrades, closures of businesses, and concerns about all forms of credit.
This perfect storm has created an incredible amount of strain on business owners, who are most vulnerable to the pressures of balancing operating expenses with longer payment times from big customers.
If you’re a business owner dealing with cash flow challenges, you might consider some alternative finance options to boost cash flow during a recession so that you can comfortably meet payroll, pay expenses, and still take on new projects to grow your business.
Ways to Boost Cash Flow During a Recession
Despite all of these ongoing economic concerns, small business owners still need to manage their cash flow.
Some large companies have already extended their payment periods as a result of these circumstances. This means that payments once promised at Net 30 could range out to 45 days, 60 days, or even longer. (We’ve even seen clients with terms as long as Net 120!) This trend is likely to continue as everyone looks to keep as much capital on the balance sheet as possible.
“How do I boost cash flow?” is a common question that many small business owners ask when they’re experiencing a cash shortfall. When it comes to small business cash flow management, many options exist — identifying the best option for your particular needs is the goal.
Before you look at these options, however, you should first look at your cash flow management. Conducting a cash flow analysis will help you determine if there are aspects of your business expenses you can cut, and those you can streamline. It may also help you see if there are areas where you can maximize additional revenue.
If you’re still looking for alternative financing options to help maintain stable funding, these are other options worth considering.
Peer-to-peer (P2P) lending
Peer to peer lending means that borrowers can take loans from individual investors who are willing to lend their own money at an agreed interest rate. A peer to peer lending service essentially cuts out the middleman, such as a traditional financial institution. While this is a great source of alternative financing, it may be difficult to access if other businesses and investors are tightening their belts due to a recession.
Small business line of credit
If your business doesn’t have a line of credit already, now is the time to start the application process. It can take months to apply and approve business lines of credit, so best to get the ball rolling sooner rather than later. You can boost your working capital using a line of credit by drawing funds from the line of credit at any time, as long as the maximum loan amount is not exceeded. This is useful for covering short-term cash flow gaps.
Small business loans
Another way to boost cash flow during a recession is to explore small business loans. Right now, the U.S. and Canadian governments are taking steps to pump capital into the financial system to help banks lend money. In the United States, the White House has requested upwards of $50 billion in loans from the Small Business Administration. This is unprecedented given that the average annual disaster loan relief from that agency floats around just $1 billion.
The challenge for small business owners waiting for relief is that it could take weeks (or even months) for the government to authorize these small business loans. By that point, cash flow challenges could worsen.
While it’s a positive sign to see governments support businesses in times of need, these business loans do make companies entirely dependent on the government and its process. While these loans will play a key role in supporting a lot of businesses, they’re also likely to simply be short-term measures.
Business owners that are looking for a bit more control should consider alternative finance options for small business funding, particularly invoice factoring.
Invoice Factoring to Boost Cash Flow During a Recession
Invoice factoring provides small business funding within a matter of days, using outstanding invoices as collateral. Your accounts receivable is essentially an untapped source of a cash flow boost.
You see, every time that you create and send an invoice, you have created a financial asset that can be used as financial collateral for funding. Companies get the full value of their invoice paid less a small fee. This gives companies the immediate boost of working capital they need to get back to work and stop fretting about client payments.
Best of all, it puts business owners in complete control of their finances — paying invoices on their terms — and gives them the peace of mind that money will arrive in their accounts in just days.
If you are experiencing longer payment terms, slow-paying customers, or simply want an alternative to the delays of traditional financing, this is a fast, easy alternative to other forms of lending during this ongoing uncertainty.
At FundThrough, we have helped thousands of customers transform their businesses through strong economic times and their most difficult times. It is the reason why we are a trusted partner of QuickBooks Online and hundreds of small businesses across North America.
If you are looking for the funding you need today or in the weeks ahead, consider FundThrough as a practical alternative. Get started by creating a free account to see if you qualify.