The old cliché is that time is money. The ironic thing about that phrase is that as a small business owner, you usually have to choose between one or the other.
One of the biggest hurdles that business owners face, particularly in the startup phase, is balancing cash flow—an issue of how much money goes in and out of your business over time. Even profitable businesses sometimes get stuck waiting for checks to clear, or for clients to pay their invoices, as expenses pile up.
When you hit a cash flow crunch, you have two options. One is to sacrifice some of your profits in order to get your money more quickly. The other is to wait, and to miss out on opportunities to expand.
Most people think of business financing (such as loans or credit cards) as a tool you use when you want to expand to a new location, or as a life raft when a business is struggling. But financing can also function as a cash cushion, giving you valuable time in exchange for small fees (or, occasionally, no fee at all).
Use A Credit Card With A 0% APR Introductory Period
If you have a strong credit history, you may qualify for a business credit card with a 0% APR over the life of an introductory period—sometimes as long as 15 months.
That’s essentially a short-term loan with no interest payments—a deal you won’t find anyplace else. (Of course, once the introductory period ends, a rate based on your creditworthiness and the market rate kicks in, so be careful—it’s not interest-free forever.)
Some elite business credit cards with this offer will charge you 0% APR on both purchases and balance transfers, which means you’ll have two ways to build up a cash cushion during your offer:
- You can spread out the cost of major purchases over many months, rather than sinking all of your liquidity into your expenses all at once.
- You can transfer existing business debt from a credit card with a higher interest rate—and many credit cards will have a rate higher than 0%—over to your new card, reducing your interest payments and giving you more time to pay off what you owe.
Other business credit cards may have better rewards and perks, but for business owners who tend to carry a balance, a 0% APR card is an invaluable tool.
Use Invoice Financing To Get Paid Right Away
Inconsistency is the enemy of cash flow. And if your business extends trade credit, allowing customers to pay you later—sometimes beyond Net 30 or whatever your payment terms are—you know all about inconsistent payments.
Maybe your clients will pay you right away. Maybe they won’t. And meanwhile, you need to put spending on hold until the cash hits your bank account.
One way to remove the uncertainty from this situation is to use invoice financing, also known as accounts receivable financing.
This is a relatively affordable and responsible form of business financing. The lender advances you the majority of what you’re owed in an invoice, and sends the rest (minus interest payments and fees) once the client remits payment. Because the loan is secured by the invoice, the business owner doesn’t need to offer up additional collateral.
You can also use invoice factoring, where the lender buys the invoice from you at a discount. You’ll receive even less of your total owed sum this way, but the burden of collecting payment no longer falls to you either, freeing you up to pursue other opportunities.
With invoice financing or factoring, you can turn an outstanding invoice into capital in one day. That kind of consistency, to some business owners, is worth the fees.
Use Inventory Financing To Jump On Deals
Let’s say your business relies on securing raw materials or inventory from a third party—and suddenly, an excellent deal on what you need comes up. It would be such a boon for your business to get inventory at this price, but doing so requires laying out more money than you have on hand.
Here’s another example of that interplay between time and money. You could let this deal go by because you’re not liquid at the moment, or you could invest money in the inventory and hope that no other unexpected expenses emerge that you wouldn’t be able to cover.
Or, you could use inventory financing. With this option, a lender advances you the exact amount you need to pay for your inventory, and you pay them back plus interest over time. If you crunch the numbers, you might find that the loan will pay for itself, as the discounted price you paid for the inventory more than makes up for the interest payments.
Again, this form of financing is responsible—the inventory acts as the collateral, just in case you default—and removes uncertainty and waiting from the equation. This way, you can move decisively, without waiting for clients or other parties to dictate whether you’re going to make this investment. As a business owner, it doesn’t get more empowering than that.
Entrepreneurs deal with risk and reward every day. Whether they’re taking out loans to fund an expansion, experimenting with new technology, or making their first hires, every business owner knows that each decision could swing their venture’s financial fortunes in either direction.
The choice to use financing to remove inconsistency and speed up their operations is just another decision business owners have to make. Even if you don’t go down that road today, it’s good to know that there are financing options out there that can help you save time—which, eventually, could help you get a return on your investment as well.