Financing Solutions When Payment is Delayed

I recently read a USA Today article titled ‘Late payments plague small businesses,’ and we’ve seen it first-hand. We’ve had clients pushed to re-organize their cash flow because of a change in their client’s pay cycle, and we’ve seen the difficulties of paying employees on time while trying to grow a business. Getting paid in 30 days is becoming a thing of the past, but there are solutions to keep your small business successful when there is a delay in payment. Here are a couple of things to consider.

1. Get with your financial person to make a good cash flow statement analysis.

2. Work with your vendors to secure longer terms. This is free financing and the reason your accounts receivable are growing. If you have a good relationship, you can work with them to find the right payment schedule.

3. If you are borrowing money, you should be discounting your accounts payable. If not, there may be questions regarding your profitability. We have had many clients negotiate more savings on the payable side than what it costs them to borrow. More cash flow means more opportunity for you to increase profitability via discounting payables.

4. Taking credit cards can work well but is limiting because of size. Most companies won’t or don’t pay via credit cards and they are only good for small amounts (less than $10,000) most of the time.

5. Slow down and don’t grow. Most entrepreneurs won’t do this, but it is sometimes a good option. Regroup your services to existing clients and figure out what you need to do to get more capital to fund your growth. Never take on a contract you can’t fulfill or it may cost you your company.

6. Your first stop in finding working capital should be borrowing at the bank. This is the cheapest, best source of growth capital out there. It’s harder to get but not impossible. Banks are looking for good owners with proof of historical profitability and strong balance sheets.

7. If the bank can’t get you that capital, companies like Far West Capital provide alternative, non-traditional financing, such as accounts receivable factoring, asset-based lending, and purchase order financing that can help your business grow.

Have questions about how your company can continue growing when there is a delay in payment from a client? Contact us today!

Showing 2 comments
  • Mike Wright

    Thanks for the insight Cole.

    #3 reminds me; I talked to a customer last week that paid all of its vendors early using their working capital line. The company saved about $50k to $100k per year in discounts from vendors for paying early, and it only cost a few thousand bucks in interest to use the working capital. The income wasn’t classified as operating income, but could well have been thought of as such.

    Businesses must come up with creative ways to manage expenses and grow cash flow today. Glad you are there to help!

    • Cole

      Great story, Mike! Thanks for reading and sharing. We’re glad we’re able to help businesses grow, too!

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