It’s well documented that cashflow issues are the main reasons why businesses fail – but not well documented enough to stop an increasing number of SMEs falling into the ‘cashflow trap’.
We ran a survey asking SME owners what they wished they had known more about before setting up in business and the number one answer was ‘cashflow management’.
Everything can look fine with your business plan. Your order book is full, you have reliable suppliers and excellent opportunities for growth. However, the day to day reality is that future profits are largely irrelevant as there are daily bills that have to be paid if you want to stay in business.
Most companies suffer growing pains. These can come in the form of finding sufficient funds to pay for stock and work in progress, the costs of marketing a new product or service and occasionally a debtor who is a slow or even non-payer. Any of these can stifle growth or cause severe cashflow issues.
This is why it is so important to have a funding solution in place, and a revolving line of credit can be the ideal solution. This is simply finance to which you have approved access. You can draw down on these funds when the need arises and normally you will only pay interest on the amount you have borrowed. When you pay back, your credit available goes back to the original amount.
The advantage of a flexible line of credit is that, unlike some other forms of business finance, it doesn’t come with a set repayment plan that might not fit with the way cash flows in and out of your busIness.
Traditionally, a revolving credit line has been a business overdraft provided by your bank, but access to this type of business finance has been steadily reducing.
Alternative lenders such as Just Cashflow have recognised this and we have introduced our Revolving Credit Facility (RCF) that works exactly in the same way as a bank overdraft and allows growing companies to smooth out the peaks and troughs.
Interest is charged on a daily basis and there is no long-term commitment, so it provides complete flexibility for the borrower.
SMEs have to keep a lot of plates spinning at the same time and unfortunately having accurate cashflow forecasts and access to a flexible line of credit are two that are dropped too often.
Want to know more about our Revolving Credit Facility? Click here.