If you’re in a cash crunch and need to find some financing for your company here are three ways you may have overlooked.
1. Vendor Financing
Stretching out trade payables from, say 30 days to 60 days, is a pretty common method for companies to improve their cash flow. Usually vendors are not very happy when this happens, and some even voice their disapproval in no uncertain terms. Most businesses are small businesses and stretching out payables only hurts everyone in the long run. Think about it: if you are depending 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 serious. You don’t have the cash to pay your bills and so a ripple effect is caused on down the line.
This suggestion is different. If you’ve established a good relationship with your vendors, sometimes it’s possible to get them to agree to finance part of your company by extending their terms for a particularly large order for an extended length of time. If you’re a new company with little or no history, you could approach vendors showing them your business plan and documentation of orders you’ve already received. If the vendor is convinced that your company will be successful, and one of their better customers in the future, they may be willing to give you a break now.
Another alternative is to guarantee the vendor that they will be your exclusive supplier for an agreed to length of time in exchange for longer credit terms. Or you can offer to pay slightly higher than market price in exchange for longer credit terms. This method can be dangerous, because it sets the precedence of a higher price. When the longer terms are no longer necessary, it may be a challenge to decrease the price you pay the vendor.
Occasionally, it’s possible to convince a vendor to exchange a trade payable owed to them for a note payable instead, or possibly an equity position in your company.
2. Customers That Prepay
If you have successfully demonstrated to your customers that you deliver your merchandise to them on time, as ordered, you may be able to persuade one or more of them to put a deposit on their future orders, perhaps as much as 50%. You can add an incentive by decreasing your price a bit in exchange for the deposit. Or you can throw in a bonus: if they’ve ordered 100 items you give them 10 extra. New customers can also be asked for a deposit, especially if it’s a large or custom order.
3.Trade And Barter
Barter is probably one of the oldest forms of commerce. It is simply the exchange of goods or services for other goods, instead of 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 usually works on a point system, one point for every dollar. The exchange has members who have agreed to barter their services and products. Let’s say you need a new lap top, but the computer store doesn’t need your product/service. You earn points by bartering with those individuals and businesses who do need your product/service. You accumulate points through the exchange. When you have enough for the lap top, you ‘buy’ the lap top with your accumulated points. The exchange sometimes takes a small percentage of the points as a fee for their services.
Don’t be limited in your thinking as to what can be bartered. Approach bartering as you would any other sale or purchase. Deal with reputable companies. Don’t feel you have to discount your product. The barter purchase is reflected on your income statement as an expense. The barter sale (what you trade) is reflected as revenue.
Barter organizations can be found on the web, just put in trade and barter organization. Many cities have locally operated barter organizations. Contact your local chamber of commerce. The yellow pages give listings as well.
Use these three methods of coming up with cash for your company.
By: Dee Power
Archive for July, 2009
Applications for home equity loans and second mortgages recently hit a 15 year high. According to Freddie Mac, “88% of homeowners who refinance their homes in the 1st quarter got a mortgage at least 5% larger than their first loan.” Since this was the largest increase since 1990, and the Fed continues to increase key interest rates, it is my contention that the demand for cash and the ability to finance quickly is the greatest it has been since World War II.
“The reality is that some people still believe the interest rate are under 6%,”said John Allen from Laguna Beach, California. John continued, “If I need cash for home improvements..Why wouldn’t I just take out home equity loan since my first mortgage rate is under 5%.” John’s mentality mirrors many of my borrowers’ frames of mind of late. Consumers are much more educated than they used to be about financing and taking out second mortgages. First time homebuyers don’t hesitate to get subordinate financing to help them accomplish their goals. Some people like John just want to finance the construction for pool and spa, but most of my borrowers are focused on consolidating credit card debt so they can cut their expenses and have access to more money at the end of the month.
Some interesting home equity products have rolled out recently. Companies like BD Nationwide Mortgage and Ditech are offering larger 125% loans, and convertible equity credit lines. They are called convertible, because they start out as variable rate credit lines, but at any point you can convert portions of the line to a fixed rate loan, and still keep the unused portions of the line of credit open for revolving credit. These hybrid home equity loans are changing the face of second mortgage products and they offer powerful features that meet the needs of a typical family as well as the savvy real estate investor.
By: Lynda Nelms