6 Crucial Factors that Affect Your Cash Flow

Ezra Cabrera

Updated: August 16, 2019

You don’t have to be an entrepreneur to know that healthy cash flow is necessary to run a business effectively. Without adequate cash flow, business owners can and do apply for fast business loans to purchase inventory, make payroll, pay for daily expenses, and more.

Related: Traditional Business Loans vs. Alternative Business Loans: What You Need to Know

Cash flow is the amount of cash and cash-equivalents being transferred in and out of your business. Proper cash flow management is a challenge for small businesses, especially for startup companies. Unless there is no gap between accounts receivables and your payable’s, cash flow problems are likely to occur.

Here are six crucial factors that affect your business’ cash flow:

1. Receivables Management

Accounts receivable is the balance of money owed to a company after rendering products and services. Until the client or customer pays their balances in full, the accounts receivables are called outstanding receivables.

The cash flow problems small business owners experience is not because they don’t have enough funds in the pipeline – but because they don’t have enough cash on hand to address current expenses. In fact, studies show that small business owners in the United States have, on average, access to $20,000 in outstanding receivables. This makes it extremely important that you manage your receivables well in order to avoid cash flow issues.

2. Investing and Financing

The investing and financing decisions of your company will also affect your cash flow. Investment decisions are based on your company’s assets. If your company decides to purchase real estate or costly equipment such as machinery, this can drastically decrease your cash flow. In the same manner, your company’s financing decisions on how to fund these purchases will also impact your cash flow.

3. Employee Management

Cash flow problems not only impact small business owners, but it affects your employees as well. The lack of working capital makes it challenging for business owners to pay their employees on time. In fact, around 43% of small businesses with cash flow problems are at risk of delayed salary payments.

Sadly, 32% of small business owners have paid their employees past their paydays. The effects of late payments can be detrimental to the lives of your employees. Some people live paycheck to paycheck in order to get by. When business owners fail to pay on time, your employees will most likely apply for other jobs in order to avoid the hardship this imposes on them.

4. Market Environment

The current market plays a role in small business cash flow as well. You may think that the market activity doesn’t impact small businesses, think again. The current state of the market impacts investing and financing for smaller businesses. If larger companies have trouble with lending, it’s usually more limited for small companies without a lot of debt options. Smaller companies should be more cautious with investment stakes. It’s important to make sure that they’re able to see an ROI within a specified period.

5. Payment Management

Another factor that affects cash flow is how small business owners manage payments. Approximately 53% of businesses send out invoices to be paid on a specific date, usually after the services are rendered. On the other hand, 47% require advance payment. Depending on the arrangement, business owners can receive payment from customers before, during, or after rendering the products or services.

But for small businesses, payment processing takes time. In fact, 31% of small businesses said that they wait more than a month to process payments. Furthermore, 66% of small business owners say that payment processing is one of the culprits when it comes to cash flow problems.

6. Working Capital Acquisition

Working capital is essential for small businesses. Without enough cash on hand, you won’t be able to fund daily business operations. If small business owners have limited working capital, they often apply for fast business loans to gain financial support.

Related: 4 Common Cash Flow Problems Solved by Invoice Factoring

However, around 39% of small business owners refuse to apply for business loans because of three main reasons:

  • High interest rates;
  • They don’t want to make monthly payments; and
  • They believe they won’t qualify.

It’s a known fact that it’s hard for small businesses to qualify for bank loans. But fortunately, online lenders or alternative lenders have made it easier for small businesses to qualify for a bank-rate loan.

Get Fast Business Loans for Cash Flow Problems

Cash flow can definitely make or break your business. The lack thereof can result in debt and even bankruptcy if not addressed immediately. If your business is having cash flow problems, and you need access to working capital ASAP, fast business loans can save the day. By managing the financing your receive, you’ll be sure never to run into complicated cash flow issues in the future.

Ezra Cabrera
Ezra Neiel Cabrera has a bachelor’s degree in Business Administration with a major in Entrepreneurial Marketing. Over the last 3 years, she has been writing business-centric articles to help small business owners grow and expand. Ezra mainly writes for SMB Compass, but you can find some of her work in All Business, Small Biz Daily, LaunchHouse, Marketing2Business, and Clutch, among others. When she’s not writing, you’ll find her in bed eating cookies and binge-watching Netflix.

Related Articles