Cash Flow Is the Backbone of Your Small Business

The majority of small businesses fail within the first five years. Cash flow was cited as one of the main causes among 60% of failed small businesses.

Although every business has its financial peaks and valleys, small businesses are especially susceptible to gaps in cash flow because of their limited capital. Cash flow was listed as one of the top five challenges faced by small businesses for this very reason.

But how do small businesses end up with gaps in cash flow in the first place? There are various reasons, such as overspending early on and being too passive when it comes to clients with late payments.

In some cases, a small business’ financial schedule just doesn’t line up with their invoices. Maybe payroll is due next week, but one of your clients’ payments isn’t due until two weeks from now. You need that payment to make payroll.

To bridge these cash flow gaps, some small businesses choose to take out a loan from a bank. But one out of every five small business owners has experienced difficulty borrowing money from traditional lenders such as banks.

Not only is taking out a bank loan difficult but it can also drive you into debt. Loans have interest rates, after all. And if you’re having cash flow issues already, falling behind on debt might be too costly a risk to take.

Fortunately, you don’t need a bank to bridge your cash flow gaps. Business invoice factoring is an accounts receivable financing option commonly used by small businesses.

With invoice factoring, you can receive payment on your invoices immediately instead of waiting 30-plus days to get paid.

Approximately 33% of small businesses said they would use a balanced cash flow to buy more inventory and equipment. Another 28% said they would use their cash flow to expand. Either way, a balanced cash flow gives you the peace of mind to run your small business without the fear of failure holding you back.

Cashflow backbone of small business