As a business owner, you are making important decisions in your business, every day. Many of those decisions depend on your capacity to raise funds. Here’s when financing comes to play. Striking a balance between equity and financing, you have to know when you need short term financing and when you need long term financing.

In our previous article, we have revealed the Most Common Reasons Why Malaysian SMEs Seek Business Financing. The article also discloses the Top 3 Short Term Financing available to fund your business. However, short term financing cannot solve all financing needs. 

Let’s look at 8 distinct scenarios when short term finance is the answer!

1. Urgent Need for “Quick Cash”

Unexpected expenses are a part of running a business. You may need the cash to fund an unfinished project or to pay for sudden legal expenses. To get quick cash funding, you can apply for short term financing until such emergency surpasses.

You have two choices; you can apply for bank financing which may take a few weeks to over a month depending on how quickly you arrange the documents and collateral to apply for the financing. Or you can opt for alternative financing. You only have to provide a few documents supporting the proof of your business ownership, your cash flow status and your credit score to make the application, which can be approved as fast as 3 days.

2. Having Difficulty in Cash Flow Management

According to SME Corp Malaysia, 35.9% of Malaysian SMEs face cash flow problems and the most common problem is delayed payments from their clients. If your business sells on credit, you need to wait for an average payment period of 90 days and even up to 120 days to receive your payment from the clients. During this waiting period, your business often runs short of liquid cash to sustain daily business expenses and attend to new clients. Short term financing such as invoice financing can help you to finance your business needs during this temporary period.

To further enhance your cash flow, read 12 Ways to Improve Your Cash Flow Cycle in 2020

3. If You are a Young Business, Operating for Less than 1 Year

When you are a young business, your investment is more than your earnings. While you are chasing for more clients, a small infusion of cash can help your business to continue operating. Besides, you need extra funds to cater to your start-up costs like paying the deposit for your office space and fulfilling market demand. Short term financing can help you to get this extra cash boost until your business is ready to run in full force.

4. Need to Purchase Equipment or Inventory

As your business grows, your equipment becomes older. Sometimes, the equipment starts malfunctioning or becomes outdated and you need to buy a new one to replace it. And, if your business is growing, you must need more inventory to attend to your increased pool of clientele. Use short term financing to fund these needs efficiently.

5. Cash Shortage during Holiday Seasons

Holiday seasons are an excellent time to maximize your sales. People’s mood is elevated, and their pockets are full. However, you need to gear up for the festive seasons. You need more inventory and additional staff to serve the large volume of clients. You may also need to spend on advertisements to promote your exclusive deals designed for the festivals. All these preparations need money. To help you get the influx of cash to prepare for the holiday seasons, short term financing is the best solution.

To know more about how to optimize your cash flow in festive seasons, read 5 Ways to Optimize Your Cash Flow for Chinese New Year

6. Taking on More Clients

Getting more clients is always good news but what happens when you don’t have enough capital to serve them? An easy way to squeeze out of such a situation is to take short term financing. You will get the fund to attain more clients. More clients mean more money and a step forward in expanding your business.

7. Planning for Business Expansion

If you are thinking of a business expansion, short term financing can provide you the extra funding that you need to finance temporary expenses to help you grow and expand.

8. Planning to Hire More Staff

When your business starts to grow, you may need to hire more staff to manage it. So, you have to invest in your internal Human Resource (HR) department or hire an external recruitment agency to seek the right candidate for your company. Upon hiring, you have to invest in each staff’s salary, bonus, and monthly performance incentive. You can opt for short term financing to raise the extra fund needed for the initial cost of this hiring process.

9. Need to Build Your Credit History

If you are a small company, you need to have some strong credit history to apply to traditional banks for bigger financing. To get started, initiate with short term financing from alternative lenders and maintain a good track record of payments. It will help you in the future to negotiate better interest and financing terms when you apply for long term financing from banks.

To summarize, use short term financing to serve your temporary capital needs. Always align the duration of capital deficiency with the duration of financing to ensure that your need is only temporary. Short term financing gives you the extra boost you need to enhance and expand your business.

Chinese New Year is just around the corner. Is your business ready to celebrate the joys of the new year? With the Chinese New Year holiday closing in, the pressure of overflowing customers is evident. While you struggle not to be overwhelmed, there’s also a queue of suppliers, employees and other service providers who push you to settle their payments before the big day arrives.

On the other hand, the business itself has its extra cost during Chinese New Year celebrations:

• Extra promotional cost to bring in customers for the festive sales
• Pay the staffs overtime for longer hours
• Cover for the additional supplies you need during this time

So, it is obvious to assume that your business is spread thin on cash flow during this period. You need to prepare before the festival is upon you to enjoy its perks. Keep reading to know-how!

1. Forecast Your Cash Flow

Run a quick check on your cash flow ins and outs. See the trail of sales and expenses for Chinese New Year in the last few years to get an estimate of the cash outflow you will experience during the Chinese New Year this time.

2. Manage the High Volume of Customers

You are sure to get an overflow of customers during the Chinese New Year time. Appoint friendly staff to offer fast and efficient services to customers. Be cautious of the orders to avoid any mishaps or delays in services. More happy customers mean more cash inflow!

3.  Take Precautions against Delayed Payments from Debtors

To overcome the extra cost of catering to Chinese New Year customers, you need money! So, if your debtors do not pay you on time, you may be dangerously low on cash. Hence, keep a record of the debtors’ due time for payment, which falls under the Chinese New Year season. Request them for payment before the Chinese New Year.

 4.  Invoice Financing

It is common for debtors to pay you later than usual during the Chinese New Year season. This leaves you with tight cash flow to fulfill your orders during this time. Invoice financing allows you to turn your receivables into quick cash giving you the cash resources to take additional orders. After you complete an order and invoice the client, you can use the invoice to get upfront cash as high as 80% under CapitalBay’s Invoice Financing program in exchange for the invoice. This will allow you to meet your spike in orders.

5.  Monitor Inventories

During Chinese New Year, some items sell more than others. For example, if you own a bakery, your moon cakes may be selling more than your other assortments of pastries during this festive season. Hence, make sure you have enough supplies to cater to the increased demand. Keep regular counts of your inventory so that you don’t run out on your most saleable item. After all, more sale means more cash inflow!

Thinking of the Best Way to Optimize Your Cash Flow for Chinese New Year?  – Think CapitalBay!

We are an award-winning Supply Chain Financing (SCF) platform that offers invoice financing to companies under the best terms and rates as follows:

• Free registration
• No legal and stamp duty fees
• No collateral is required
• Approval is as fast as 3 days
• Cost of financing is as low as 0.8% per month
• Enjoy 80% of cash instantly from your invoices to the customers

The cashflow cycle is a gap between the cash collected from your receivables and payments to be made to your payables. The shorter this cycle, the smoother your business operations because admit it or not, cash flow shows the real picture of a company. Profit only projects your cost and revenue in paper whereas your cashflow statement says how much money your business has at that position of time.

With the new year 2020, set your priorities right!

We have listed some key ways to improve your cashflow cycle. Use these approaches to keep your business rolling, hard and fast!

1. Credit Check – To Vet Your Debtors

A credit check is a MUST to know the past records of your potential clients before engaging with them. Your client’s previous transactions with other parties will give you an idea of whether you can rely on him to make timely payments. So, avoid dealing with people with questionable credit. If you have a doubt but still want to proceed with a client with low credit, make sure to set up the payment with a high-interest rate.

2. Fast Track Your Business Flow – To Move  Up Your Payment Cycle

Use efficient tools like Just-in-time (JIT) to manage your inventories so that you can speed up your business flow especially your supply and delivery process. The faster the client receives your good, the faster he will settle your payment.

3. Send Invoices Out Immediately – Early Invoice Means Early Payment

If your payment duration is long, one of the reasons can be your invoices. Send your invoices as soon as you deliver your product or services so that clients can pay you. Make sure you have an easy process to prepare invoices that are easy to fill out and include all necessary details. That way, your invoice can be processed faster, and you will see your money coming back sooner than later.

4. Automated System – Fast Track Your Accounts Receivable System

Use simple software to keep track of your accounts receivable payment timeline since manual tracking of your debtor’s aging schedule can be a little tedious. With an automated system in force, you can send frequent reminders to your debtors when the payment due dates are close and follow up with text and calls if they miss out on the deadline. Moreover, you can align your invoice date with your customer’s payment cycle to smooth the payment flow. 

5. Offer Incentives to Debtors – For Faster Collection

Usually, when you sell your products on credit, you receive the money for your goods after 30-90 days period. This duration can even go as high as 120 days putting a significant gap in your cashflow cycle. Therefore, offer discounts on early settlements to encourage your debtors to pay faster. This will allow you to expedite your cash flow cycle and reduce the chances of delayed receivables collection.

6. Invoice Factoring – Turn Your Invoices Into Quick Cash

Don’t waste your money tied up to debtors. Consider invoice factoring companies to sell your invoices and get instant cash in exchange for a small fee. CapitalBay is one such company that offers as high as 80% upfront cash on your invoices. The remaining 20% value of your invoice is paid once your debtor makes the payment to CapitalBay.

This is an excellent way to instantly collect the money from your debtors to utilize it in other projects. More importantly, it reduces your risk of bad debts and saves valuable time spent on chasing debtors to collect money on time.

7. Regulate Your Accounts Payable – To Get Better Deals From Your Suppliers

Train your accounts payable team to manage your liabilities efficiently. Also, take advantage of the early payment discounts and always make your payments on time. This will increase your goodwill and you can negotiate better rates with your suppliers based on your excellent credit history.

8. Electronic Payments – To Push Back Your Cash Outflow

Electronic payments simply refer to online banking transactions. When you make online payments, your creditors will receive the payments instantly compared to issuing a cheque. So, you can wait until the last minute to pay your creditors. This will allow you more time to keep the cash in your company and hold off the cash outflow as long as possible. As a result, you can buy more time to shorten your cashflow cycle.

9. Find Investing Alternatives – To Finance Your Cash Outflows

It is common to keep a cash reserve for rainy days and sometimes you may have some extra cash sitting around in your bank account. Rather than just leaving the money in the bank account with 0 yields, make some short-term investment to make money. For example, you can put the extra cash in a high-yield savings accounts or invest the cash via P2P platforms to get good returns. 

In fact, CapitalBay is opening up its P2P platform in the first quarter of 2020, where you can enjoy more than 10% projected return per year on your investment. This type of investing will not only give you better returns than a savings account, but it will give you an opportunity to diversify your investment portfolio. Moreover, you can use these returns to finance your business operations more efficiently.

10. Revisit Your Inventory – To Prioritize Your Sales

Have a close look at your inventory. You will always find products with low demand that ties up a lot of your cashflow. Besides, it adds up your storage cost causing a cashflow deficit. Instead of waiting for the golden day when the sale of these items will miraculously rise, get rid of these slow-paced products by offering them at discount. This will stack more cash inflow to your cashflow cycle.

11. Leasing Fixed Assets – To Reduce Your Overheads

Prioritize your expenses! Buying fixed assets require spending a large sum of money. You may not always have such a large influx of cash inflow to invest in your fixed assets. The better alternative is to reduce your cost by leasing some of your fixed assets. This will allow you to use fixed assets by paying only a small payment each month, freeing up the rest of the cash to invest in other more important parts of your business.

12. Make Cashflow Cycle An Inclusive Initiative

Don’t burden only your finance team to manage your cashflow. Include the sales and marketing team to give them an idea of the company cash. This will enable all departments to prioritize cash flow by choosing trustworthy customers and manage them accordingly to receive money on time.

The cashflow cycle is a Key Performance Indicator (KPI) that reflects on how long it takes for a Ringgit spent in your business to return into your pocket. You should aim to have your money in the bank before you spend it, in other words, generating a negative cashflow cycle, preferably -6 days. A company becomes much more attractive to investors and other stakeholders when you have a robust cashflow cycle. In many ways, people who put up money in your business will rely more on your cashflow than your profit statement. So, improve your cashflow cycle in 2020 to shape up a smooth-running business by implementing these valuable key points.

Kickstart with the Best Financing Solution!

CapitalBay can help you with the best financing solution if you need assistance to improve your Cashflow Cycle. We offer invoice financing which has the following attributes:

• Easier
• Faster
• Flexible
• Cost-Effective
• Collateral-Free

Check out for more info here and get a free quote for your business financing now.

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