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If you’re short on cash and need to find some financing for your company, here are three ways you may have been overlooked.
1. Vendor Financing
The stretching of trade payables from 30 days to 60 days is a very common way for companies to improve their cash flow. Sellers are usually none too pleased when this happens, and some even express their disapproval in no uncertain terms. Most businesses are small businesses and raising dues hurts everyone in the long run. Think about it: If you depend on a customer of yours to pay you within 30 days, and that customer doesn’t pay for 90 days, it could significantly impact your cash flow. If this is one of your major customers, the impact could be quite severe. You do not have the cash to pay your bills and hence there is a ripple effect on the bottom line.
This suggestion is different. If you have established a good relationship with your vendors, it is sometimes possible for them to agree to finance part of your company by extending their terms for extended periods, especially for large orders. If you are a new company with little or no history, you can approach vendors showing them your business plan and documentation of orders you have already received. If the salesperson is confident 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 option is to guarantee to the vendor that they will be your exclusive supplier for an agreed period of time in exchange for longer credit terms. Or you can offer to pay slightly more than market value in exchange for longer credit terms. This approach can be dangerous, as it sets a high price preference. When longer terms are no longer necessary, reducing the price you pay the seller can be a challenge.
Sometimes, it is possible to persuade a vendor to exchange its trade payable for a note payable instead, or possibly an equity position in your company.
2. Customers who prepay
If you have successfully demonstrated to your customers that you deliver your goods on time, as ordered, you may be able to persuade one or more of them to place a deposit on their future orders. Are, maybe up to 50%. You can add incentives by slightly lowering your price in lieu of a deposit. Or you can offer a bonus: If they order 100 items, you give them an extra 10. New customers may also be asked for a deposit, especially if it is a large or custom order.
3.Trade and Barter
Barter is probably one of the oldest forms of commerce. Instead of using cash as a medium, it is simply the exchange of goods or services for other goods. Trade may take place directly between two parties or trade may take place through barter.
Barter exchanges typically operate on a point system, one point for every dollar. There are members of the exchange who have agreed to sell their services and products. Let’s say you need a new laptop, but the computer store doesn’t have a need for your product/service. You earn points by bartering with individuals and businesses that need your product/service. You accumulate points through the exchange. When you have enough for a lap top, you ‘buy’ a 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 of what can be bartered. Approach barter as any other sale or purchase. Deal with reputed companies. Don’t feel like you have to discount your product. Barter purchases show up as an expense on your income statement. Barter sales (the merchandise you do) are reflected as revenue.
Barter organizations can be found on the web, simply put in trade and barter organization. Many cities have locally operated barter organizations. Contact your local Chamber of Commerce. Yellow Pages also offer listings.
Use these three ways to come up with cash for your company.
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