How To Use Lines of Credit To Improve Cash Flow
Among the many uses of business lines of credit is being able to improve your business’s cash flow. Doing this can take great care of your company’s financial health and make it easier to respond to unexpected emergencies. How can you use business credit in this way?
What Is Cash Flow?
To understand how to bring your business’s cash flow to life, first it’s important to understand exactly what cash flow involves. In simple terms, cash flow refers to the liquid capital going into and out of your bank account. You receive cash when you get paid by your customers, and you spend it by taking care of business operations or investing in things such as equipment. A healthy business should have money consistently coming in and going out every month. This means you’re making profits and using your capital wisely.
What Are the Challenges of Maintaining Consistent Cash Flow?
For many companies, billing means waiting 30 or 60 days to actually get paid. This can cause a shortage of cash while you await payment. Another obstacle to smooth cash flow are seasonal changes. Some companies, such as lawn care businesses, construction companies and cleaning companies, have to adapt to changing weather. As winter draws close, it can mean that profits start to slow as well.
Two other common issues are long-term projects and unexpected market changes. If a construction project takes two or three months to complete, a general contractor has to draw on company funds for payroll and other expenses but can’t bill for the project until it’s complete. Natural disasters or other local situations can also make business slow, such as when road construction happens near your business.
How Can Business Lines of Credit Fortify Your Cash Flow?
In all of the situations mentioned above, having access to business lines of credit can keep your cash flow going strong. For example, in the case of the construction company that has to wait three or four months to receive payment for a large project, how can the business handle operating expenses, raw material purchases, payroll, maintenance costs and other needs? With business credit. This source of working capital is always available, and you only pay interest on the amount used.
As soon as payment is received, covering the cost of this valuable financing is easy. In fact, with powerful financial backing, situations like this can soon seem like business as usual. Business credit is more than a safety net. It’s a versatile tool that works perfectly for front-loaded business operations.