Funding your business – working capital finance

Published by Rachel Emmerson on 15 November 2021

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When it comes to cash flow and calculating working capital requirements, knowledge is power. The more you know about your cash flow position, the easier it is to get ahead of challenges before they arise. Continually monitoring your cash flow, not only lets you know where you are on any given day but where you’re likely to be in the next month, quarter, or year.

“I’ve got steady cash flow right now, so there’s no reason to secure funding”

Actually, this can be the best time to consider funding options because you’re applying from a stronger financial position. You’ll secure more funding, at better rates and more easily when things are going well and then you can use it proactively as part of your strategic business plan.

Try to identify trends in your cashflow, times of the year when cash flow is tight because of slower sales, for example, or months where your costs will be higher as you prepare for increased demand.  Consider lead times on materials and the historic data of when customers are likely to pay.  Then get the right funding in place to get ahead of seasonal dips and peaks in demand for cash.

We all understand a term loan as providing a simple cash injection to pay back over time plus some interest. However, is this really the right sort of funding to help manage your day-to-day working capital?  As they say, ‘cash is king’ and it needs to be in supply in order to support ongoing trading and any growth.  Some alternative working capital funding products available are;

Invoice finance

This type of funding lets you advance the money owed to you in outstanding invoices, without waiting for your debtors to pay. It’s a flexible way to access funds as and when you need it – to buy more stock than usual ahead of your busiest season or to release some cash sitting in slow-paying customer debt for example.

Merchant cash advance

This is an alternative to your standard bank loan that gives your business a bit of wiggle room. You pay the loan back as a pre-agreed percentage of daily card transactions, so in months when you know there’ll be less money coming in, you can relax knowing you’ll also pay less on your loan.

Trade finance and purchase order finance

These kinds of funding enable you to take on more customers and fulfill bigger orders than you would otherwise be able to by providing capital to cover upfront costs.

The key thing to look for in this kind of funding is a transparent fee structure where you only pay for the funds you use. You’ll also want the flexibility to access funds quickly, but only as and when they’re needed.

It is vital that you allow yourself enough time to discuss, research, and consider the right type of funding for your business and its needs.

If you would like to discuss funding for your business, get in touch with us to see how we can help you shape your future.

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