|Young, growing companies may face cash flow challenges as cash becomes hard to come by in the early stages of growth. When long-term cash flow financing is not available, other strategies can be implemented to increase cash flow.|
Accounts Receivable Factoring
When a company sells accounts receivable, it receives immediate cash at a discount rather than waiting for customers to pay. Though a company will not receive the face amount of accounts receivable under accounts receivable factoring arrangements, it will receive the money sooner than waiting for customers to pay. This can provide young companies, or any company needing a cash infusion, with immediate cash flow to fund operations.
A leaseback is when a company sells plant and equipment, and then leases them back. Instead of selling assets outright, a company can lease them back which provides the company with immediate cash from selling the assets, while allowing the company to continue to use the assets in its operations. An additional benefit of a leaseback is that a company can then deduct lease payments on its tax return.
Purchase Inventory on Credit
A company can request that its suppliers extend it credit. In many cases suppliers will extend credit so they can retain a loyal customer, which allows a young company to preserve cash while purchasing inventory and supplies in the early and critical stages of growth.
Track Inventory Bestsellers
Management should review which inventory items are selling the best, and drop items that are not selling quickly. A company has the option of offering more products later, but in the early stages of growth, companies should focus on those products that are bringing in the most revenue so it does not tie up cash in inventory that is not moving. For more information on how even the largest companies manage inventory costs and operating expenses this way, review the operating margin and the 80/20 principle for more information.