If you’re in a cash crunch and need to find some financing for your business, here are three ways you may have overlooked.
1. Supplier Financing
Extending accounts payable from, say, 30 days to 60 days is a fairly common method for businesses to improve their cash flow. Vendors are usually not very happy when this happens, and some even express their disapproval in no uncertain terms. Most companies are small businesses and stretching accounts payable only hurts everyone in the long run. Think about it: if you depend on one of your customers to pay you within 30 days, and that customer doesn’t pay for 90 days, it can significantly affect your cash flow. If it’s one of your major customers, the impact can be quite severe. You don’t have the cash to pay your bills, so there’s a ripple effect down the road.
This suggestion is different. If you’ve built a good relationship with your suppliers, it’s sometimes possible to get them to agree to finance part of your business by extending their terms for a particularly large order for an extended period of time. If you are a new company with little or no track record, you can approach suppliers by showing them your business plan and documentation of orders you have already received. If the vendor is convinced that your business will be successful and one of your best customers in the future, they may be willing to give you a break now.
Another alternative is to guarantee the seller that they will be their exclusive supplier for an agreed period of time in exchange for longer credit terms. Or you can offer to pay a slightly above market price in exchange for longer credit terms. This method can be dangerous, because it sets the priority of a higher price. When longer lead times are no longer necessary, it can be a challenge to reduce the price you pay to the provider.
Occasionally, it is possible to convince a supplier to exchange a trade payment due for a promissory note in its place, or possibly an equity position in your company.
2. Customers who pay in advance
If you have successfully demonstrated to your customers that you deliver their merchandise on time, as ordered, you can persuade one or more of them to put down a deposit on their future orders, perhaps up to 50%. You can add an incentive by lowering your price a bit in exchange for the deposit. Or you can add a bonus: if they’ve ordered 100 items, you give them an extra 10. New customers may also be asked for a deposit, especially if it is a large or custom order.
3.Trade and barter
Bartering is probably one of the oldest forms of trade. It is simply the exchange of goods or services for other goods, rather than using cash as the medium. The trade can be directly between the two parties or the trade can go through a barter exchange.
The barter exchange generally works on a point system, one point for every dollar. The exchange has members who have agreed to exchange their services and products. Let’s say you need a new laptop, but the computer store doesn’t need your product/service. You earn points by exchanging with those people and companies that need your product/service. You accumulate points through redemption. When you have enough for the laptop, you will ‘buy’ the laptop with your accumulated points. The exchange sometimes takes a small percentage of the points as a fee for its services.
Don’t be limited in your thinking as to what can be traded. Approach barter as you would any other sale or purchase. I deal with reputable companies. Don’t feel like you have to discount your product. The barter purchase is reflected on your income statement as an expense. The barter sale (what you exchange) is reflected as income.
Barter organizations can be found on the web, just enter the trade and barter organization. Many cities have locally operated barter organizations. Contact your local chamber of commerce. The yellow pages also give listings.
Use these three methods to generate cash for your business.
