Receivables problems are one cause for a startup failing; as this creates cash flow problems. Cash flow is nothing but the total money coming in compared to the total amount of money going out. The trick for every startup CEO is to maintain cash flow in a way that the organization is never at a huge unrecoverable loss.
What is cash flow?
Cash flow measures the ratio of the total money coming in and going out. The idea here is that in your business plan, you plan ahead and foresee when and how the major expenditures will take place. Unfortunately, for startups, especially those in growth phase, cash flow is hard to predict.
Causes for receivables problems
The reasons why startups run into problems collecting receivables is because of customers and growth. When customers start to delay their bill payment, it is then that the company starts running into cash flow problems. This obviously is somewhat of a surprise to owners and is something that must be addressed.
How to fix receivables problems
Assuming your customers cannot be responsive; there are 2 primary ways of getting out of problems collecting receivables:
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The first option is for you to start delaying the payment of your suppliers. You will have to pass this message along the supply chain so that they can do the same.
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The second option is for you to sell your receivables to a 3rd party finance company. This method is called factoring. Factoring can be the difference between a thriving startup and a folding one.
References
- Please see the Post: Invoice Factoring – a way to generate cash flow
- How to Maintain Cash Flow in Your Business
- Tips for Collecting on Your Accounts Receivable
- Critical Metrics for Measuring Accounts Receivable Performance
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