Managing Cash Flow for a Seasonal Business

cash flow for a seasonal business ice cream truck

Cash flow is difficult enough to master on its own, but your business is different than the usual — it’s a seasonal operation. This makes cash flow all the more vital to the livelihood of your company since money’s only coming in during certain times of the year.

Of course, yours isn’t the first business to operate on a sporadic or seasonal basis. Because others have gone before you, plenty of tips are out there so you can be sure you’re really harnessing the power of your cash flow. Plus, you have the power of PayPie on your side — we know how to help you manage your cash flow for a seasonal business.

Here are seven tips for managing cash flow for a seasonal business:

1. Set up a line of credit

Regardless of your cash flow, you never know when your operations will require even more money than expected. That’s why you should always apply before you need it — you won’t want to scramble when you realize you’re in a pinch. Especially because banks won’t be thrilled to lend to a company that doesn’t have cash coming in at its current juncture. Apply now to prepare for whatever may happen.

Once you’ve taken all the steps to set up your line of credit, you’ll be much more adept at handling emergency situations, should they arise. Many companies will take out loans at this point to cover their bases, but beware — the interest rates on these sums might be high. With a line of credit established long before a do-or-die moment, you’ll probably have much more reasonable repayment fees. It’s simply a smart tool to have at your disposal.

2. Put invoice factoring on your radar

Sometimes, even with the best planning, a cash flow crisis can happen. You made a huge sale in the busy season and dipped into your resources to do so. Now that things are slowing down, the payment still hasn’t come in. If you need a solution that’s faster than applying for traditional loan or line of credit, consider invoice factoring to help manage cash flow for a seasonal business.

Invoice factoring helps you turn unpaid invoices into funds by letting you sell your invoice to a factor (lender), who, in turn, pays you a set percentage of the invoice. You receive the balance, minus fees and interest, once the customer pays the invoice.

More Tips: 7 Ways to Boost Cash Flow 

3. Audit your expenses

To make the most of your cash flow for a seasonal business, you should scrutinize any and every expense required to sustain your operations. Even though much of your money will, indeed, be necessary to spend, you might find little places where you can trim the fat. Something as simple as an online subscription service for $15 a month that’s left to renew during the off-season automatically can add up to a sizeable — and worthless — expense.

You might have to reconsider the size of your staff and their location, too. Renting a space for an entire year that you don’t need or keeping employees on the payroll even when the season’s over will add up. At a certain point, you can’t justify it — even if your business is staying afloat.

4. Diversify your offerings

Your seasonal business is fruitful, but the off-season is tough. Perhaps there’s an answer to your problem in the form of a complementary product or service that will appeal to your customers when you usually are unable to work.

Think about it — cruise ships sail south for summery escapes to the Caribbean, but they also voyage north so passengers can see New England’s changing leaves or icy Alaskan landscapes. Bustling resorts become locations for company-wide retreats, attracting business year-round with discounted rates to host conferences in the off-season.

Of course, not every operation will have a clear seasonal opposite that will also bring in money. In that case, brainstorm to see if you can come up with something unrelated, but economically viable. However, it’s best if you can use your pre-existing resources and team, so try not to veer too far from your initial business plan.

cash flow for a seasonal business life preserver

5. Build an emergency fund

We’ve already discussed why you should open your line of credit ASAP. At the same time, start building your emergency fund now, so you have cash available in tight spots. Industry experts tend to suggest an emergency fund with at least one month’s worth of operating costs. Don’t be too optimistic about the amount of cash you’d need in such a situation, either — it’s better to be overly prepared than ill-equipped for a drought.

There are plenty of tips for entrepreneurs building an emergency fund — something as simple as gathering coins in a jar can add to your cash flow for a seasonal business. Of course, more substantial efforts like working with a financial advisor or using online tools to tally up your stockpile will make more of a difference. No matter how you do it, setting this money aside and considering it untouchable in your mind is the key to having funds when you need them.

Read More: 10 Best Businesses for Cash Flow 

6. Use downtime to your advantage

Another way to maximize cash flow for a seasonal business is to look at your downtime in a completely different way. Rather than putting your feet up and coasting until the high season resumes, improve your skills and business acumen.

For many entrepreneurs, this means taking classes and enhancing knowledge, so it’s no longer necessary to outsource those tasks that keep your business running. For example, you could sign up for a video editing course and start making your own online marketing clips, rather than hiring a team to film and create content for you. Training your employees to do more can improve turnover rates and boost their sense of accomplishment, among other benefits.

Another way to slash costs in the interim is to do your research. Reach out to different suppliers to see if you can find someone who will give you what you need for less than what you’re paying now. Then, you can even try renegotiating existing contracts with this knowledge. You have nothing but time during the off-season — use it to your advantage.

7. Know your cash flow

No one is more familiar with the inner workings of your business than you. Implement the any of the tips above to your best judgment or come up with other ways to save cash in your off-season.

Whether your managing cash flow for a seasonal business or any business, cash flow forecasting is an invaluable tool. It gives you insights into exactly how and when money is coming into your business or flowing out to cover expenses. It will also help you more accurately identify the timing of your peak income periods.

The more you know about your cash flow, the better you’ll be able to manage it. This is the main reason we created our free cash flow forecasting tool. You work hard and we work hard to give you the tools you need to keep your business healthy.

Discover our cash flow forecasting and other cash flow management tools today.

PayPie currently integrates with QuickBooks Online. Additional integrations are coming soon.

This article is informational only. It does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional.

Images via Pexels

Cash Flow vs Profit: The Difference

businessman confused over cash flow vs profit

Butterflies and moths, crocodiles and alligators, speed and velocity. There are lots of things that seem like they’re the same but are actually quite different. In the business world, the topic of cash flow vs profit continues to confound.

As advocates of better cash flow knowledge and long-term financial health, we present this overview of the Batman and Robin of the finance universe — cash flow vs profit. A dynamic duo all their own, cash flow and profit are often part of the same discussion, but each has its own specific meaning and role.

The “textbook” definition of cash flow

Cash flow is the pattern and amounts of cash that move in and out of business over a set period of time.

  • Cash flowing into a company is called an inflow, while cash flowing out is an outflow.
  • It is primarily a measure of liquidity or a company’s ability to meet its short-term obligations, such as fulfilling orders, meeting payroll and other routine operational costs.
  • It is measured across operations, investment and financing activities — with the operational or day-to-day incomes and expenses, especially accounts receivables and accounts payable, taking center stage.

Cash flow = operational cash flow + investment cash flow + financing cash flow

The primary metrics for cash flow are recorded in a cash flow statement.

More on Cash Flow vs Profit: Cash Flow Basics — Key Concepts and Terms

The “textbook” definition of profit

Profit is literally revenue minus expenses. It’s the total amount of money that a company brings in, minus the total expenses.

It’s a measure that simply determines if the company is bringing in enough sales to cover the overall cost of running the business and generate a surplus.

The variables for profit are recorded in a profit & loss statement, also known as an income statement.

Calculating profit

Profitability is a factor of gross profit and net profit.

Gross profit = revenue – cost of goods sold (COGS)
Net profit = gross profit – operating expenses

As an example, here are the numbers for Joe’s Trucking:

Joe’s Trucking earned $30,000 in revenue one month, but its COGS was $10,000. On top of that, there was another $5,000 in operating expenses.

Gross profit = $30,000 (revenue) – $10,000 (COGS) = $20,000
Net profit = $20,000 (gross profit) – $5,000 (operating expenses) = $15,000

Cash flow vs profit — the different math

One difference between cash flow and profit is that cash flow only records income when it comes in, such as when an invoice is paid. Profit is recorded as it hits the books when an invoice is sent out, instead of when it’s paid.

For instance, if the $15,000 net income for Joe’s Trucking is only accounting for outflows stemming from COGS and operating costs. However, it doesn’t reflect the impact of unpaid invoices.

So, if Joe’s Trucking recorded $20,000 in invoices issued, but none of the invoices were paid, they’d actually have a negative cash flow of $5,000.

$15,000 (net profit) – $20,000 (accounts receivable outstanding) = -$5,000

This means that while Joe’s Trucking is profitable, it’s cash flow wasn’t as healthy.

cash flow vs profit

Cash flow vs profit — there’s no direct relationship

Cash flow tells you when money is going out and when it’s coming into your company, while profit doesn’t reflect the timing of inflows and outflows.

As a result, while cash flow and profit are related, they’re not directly correlated. If one is positive, the other won’t necessarily be positive and vice versa.

It’s also a reason why businesses can get frustrated come tax time as business income taxes are calculated based on profit rather than cash flow. If it looks like you’ve made money, you’ll have more taxes to pay, even if you don’t have the money to do so.

Things to Know: 10 Best Businesses for Cash Flow 

Cash flow vs profit — the four scenarios

1. How a business can be cash flow positive and profitable

This is the best-case scenario that every business targets — positive income growth coupled with positive cash flow. It means the business has healthy sales and that its cash flow cycle is balanced so that there’s always enough to meet regular expenses as they’re incurred.

7 Ways to Boost Cash Flow 

2. How a business can be profitable and cash flow negative

A business in a rapid growth phase might be highly profitable but have a shortage of cash due to the investment needed to meet demand, such as an equipment purchase. Or, it could be that their accounts receivable cycle is out of sync with their accounts payable. Money’s coming in, just not at the right time. This is why accounts receivable gets so much scrutiny as part of a cash flow analysis.

Fact: Small to medium-sized businesses are more likely to be “cash poor” because they use their operational cash flow as the main source of business funding. They simply don’t have the reserves of a Fortune 500 company.

Cash Flow Problems: 6 Top Causes

3. How a business can be cash flow positive with no profit

This scenario is most likely for new or early-stage businesses and startups. For example, if a startup has a cash influx due to investor funding while the product or service is under development. Or, it could be a business that just opened its doors. It has the reserves to get to a starting point but hasn’t begun to record income.

Another reason a business can be cash flow positive without a profit is when the owner has secured financing to solve a lumpy cash flow. If the terms of the loan aren’t favorable, this can also lead to further cash flow struggles.

How to Read a Cash Flow Statement 

4. How a business can be cash flow negative and have no profit

Actually, you can’t be a business for very long without cash flow or profit. This is the worst-case scenario – no sales and no reserves. There’s likely a fundamental flaw in the business plan, the product, pricing or all of the above. Hint: Nobody aims for this one.

Reporting, Cash Flow and Your Business’ Financial Health

Cash flow is a stronger indicator of success than profit

There’s a reason why Batman is always the hero and Robin is a sidekick. Conspiracy theories aside, once start studying up on cash flow, it’s impossible not to stumble across the expression, “Cash is king.” Because, in the business world, it’s true.

Of course, profit helps, but the thing that matters most is having enough money at the end of the day to pay your bills. If you’re not paying attention, cash flow can be a silent killer. (Only no one’s developed a foolproof alarm like there is for carbon dioxide. A bat signal isn’t particularly effective either.)

Cash Flow Forecasting: What You Need to Know

Avoiding a cash flow crisis

Another reason that cash flow is so crucial to small and medium-sized businesses is that it’s harder for them to find short-term lending options. Even credit cards are hard to come by if you’re business is new or your credit rating has taken a hit. And traditional loans and lines of credit have lengthy application processes.

It’s also why online lending and financial tools been developed to meet these needs. Tools like cash flow forecasting that connects to your online accounting software and financing options like invoice factoring to help you get affordable funds more quickly.

PayPie currently integrates with QuickBooks Online. Additional integrations are coming soon.

This article is informational only. It does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional.

Image via Shutterstock.

Accounts Receivable Turnover: Why It Matters

Accounts Receivable Turnover Paid Invoices

As a business owner, you probably have numbers running through your head all the time as it is. But, it’s important to add another calculation to your list — accounts receivable turnover — to help complete your cash flow picture.

At PayPie, we know how difficult it can be to stay on top of every sum, ratio and forecast of your accounts, no matter how diligent of a business owner you are. That’s why we try and make it simpler with insightful tools that delve deeper into your finances, rather than showing you your account balance and nothing else.

Together, we can add this calculation to the list.

What’s accounts receivable turnover?

When you invoice a customer and set the terms of payment, you’re essentially creating a form of credit.

Customer credit is a vital payment method for any business — it lets your customers buy goods or services from you now and fully pay for them later. Therefore, it can drive sales, but it can also be a detriment to your cash flow if some of your customers fail to pay in full, even with time to do so.

Accounts receivable turnover analyzes just how well you’re dealing with outstanding customer credit. The simple ratio, also known as the accounts receivable turnover ratio or debtor’s turnover ratio, gives you an insight into how customer credit affects your business.

Mainly, it points out how well you’re managing your customer credit relationships and collecting the proper payments on any outstanding debts your customers are carrying.

Read More: 7 Ways to Boost Cash Flow

How accounts receivable turnover is calculated

Jot down this ratio — or bookmark this page — so you remember it from now on:

Accounts receivable turnover = net credit sales ÷ average accounts receivable during the tracking period

Be sure you’re only incorporating your credit sales since cash payments have nothing to do with the effectiveness of your crediting scheme.

This ratio is often calculated on an annual basis. However, it can also be measured on a quarterly or monthly basis.

accounts receivable turnover ratio calculation

An example of how to calculate accounts receivable turnover

The following is an example of how to calculate accounts receivable turnover on an annual basis.

Let’s say Widgets Incorporated had $1,000,000 in accounts receivables as of January 1, the start of their fiscal year. On December 31, at the end of the year, they had $2,000,000 in accounts receivables.

Throughout the year, they had a total of $5,000,000 in net credit sales.

Step 1: To get the average accounts receivable, you follow the same formula that you would for any average. You add both numbers together and divide by two.

Average accounts receivable = ($1,000,000 + $2,000,000) ÷ 2 = $1,500,000

Step 2: Take the net credit sales and divide it by the average accounts receivable.

$5,000,000 ÷ $1,500,000 = 3.33

Step 3: Divide 365 (number of days in a year) by the accounts receivable turnover to see how long it takes an average customer to pay their bill.

365 ÷ 3.33 = 109.6

This means that the average Widgets Incorporated customer takes nearly 110 days to pay their bill. Clearly, this needs to be fixed. The company makes great widgets, but they’re a bit too generous with their payment periods and need to ramp up on collections.

Accounts Receivable Turnover Ratio

How accounts receivable turnover is used

You can’t predict future sales or cash flow with 100% accuracy, but the accounts receivable turnover ratio gives you deeper insight into your business prospects. The ratio shows you how long it takes customers to pay their debts, which can help you plan your future expenses.

By pinpointing any collections problems your company faces, you can boost cash flow back into the business. This will help you foster future growth for your company and focus your efforts to cultivate a client base that’s financially robust and responsible.

Read More: Cash Flow Basics — Key Concepts and Terms 

Why accounts receivable turnover matters

Your ratio can reveal whether or not your company has a good credit policy. It also shows how well you’re managing any outstanding debts. A low accounts receivable turnover ratio might deter lenders from working with you. Without available cash flow at the right points in time, how will you repay your debts?

If you’re unhappy with the ratio you find, you can implement new policies to boost your figures. For example, a low ratio might require you to impart more stringent penalties on late payments. Or, you could come up with a rewards program for those clients who always — or begin to — pay on time.

Read More: Cash Flow Problems: 6 Top Causes

Evaluating your accounts receivable turnover

What’s a good turnover ratio and what represents opportunities for improvement? When it comes to the account receivable turnover ratio, the higher the number, the better. A sizeable figure can highlight plenty of good qualities about your business, including:

  • You’re regularly receiving debt payments, thus boosting cash flow.
  • Customers pay you back fast, which means they don’t have an outstanding line of credit and can buy more from you.
  • You have a good customer base that adheres to invoice due dates rather than taking on debts
  • Your collection system works well.

On the other hand, you might calculate your account receivable turnover to find a very small number after the equal sign. If so, your low ratio could indicate that:

  • Your cash flow is low since your customers have lingering debts.
  • Customers can’t make payments, which means they likely won’t buy again in the future.
  • You have an overly lenient credit scheme.
  • Your collection system is ineffective.

Fortunately, once you see where you fall on this spectrum, you can start making some of the improvements mentioned above to your crediting scheme. Or, you can keep moving forward if you’ve already got a system that’s proven to work.

If you experience a cash flow shortage while you’re working on improving your accounts receivables processes, invoice factoring is one way to turn an unpaid invoice into cash. Basically, it lets you sell the invoice to a buyer/lender so that you can get a set percentage cash out of the invoice as quickly as possible. (Learn more about invoice factoring here.) 

How accounts receivable turnover affects cash flow

It’s clear how a positive accounts receivable turnover would boost cash flow. If customers are diligent about repaying their debts — and if you incentivize their behavior or penalize lateness — you’ll have more cash pumping into your company.

On top of that, your regular customers will keep coming back, since they’re regularly repaying and re-opening their lines of credit. The more good payments you’re receiving, the better your cash flow will be.

Cash flow is vital to your business— when money comes in on a reliable and regular basis, you can expand your reach and seize opportunities in countless ways. And, while the accounts receivable turnover ratio is one way to figure out how you can boost the amount of cash on hand, you will also benefit from a cash flow forecast from PayPie.

This report takes a deep dive into your accounts receivables to show you just how healthy your business is right now and how much it’s set to grow in the future. It helps you visualize your strongest suits, as well as the areas in which you can improve.

If you’re a business owner, then there’s no better time than now to start forecasting and planning for the future.

Log in — and crunch some numbers of your own — to get on the right track.

PayPie currently integrates with QuickBooks Online. Additional integrations are coming soon.

This article is informational only and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional. 

Images via Shutterstock and Pexels.

10 Reasons Accountants Should Offer Cash Flow Consulting

ccountant offering cash flow consulting

If you’re an accountant who serves small to medium-sized enterprises (SMEs), why should you consider providing cash flow consulting as part of your value-added services?

If like us, you’re dedicated to giving businesses the tools they need to forecast cash flow and strengthen their long-term financial health, here are 10 reasons why you should offer cash flow consulting:

  1. Most businesses are small businesses

Globally, there are more small businesses than any other kind of business. Consider these numbers: 99.9% of all US businesses, 97.9% of Canadian businesses and 99% of all businesses in the world are small businesses.

Most accounting firms are also small businesses. For example, 90% of all accounting firms in the United States have less than 10 partners or owners.

Case Study: Cash Flow Consulting in the Real World 

  1. Accountants are trusted advisors

Like attracts like. If you’re a small business looking for a professional accountant, are you going to go knocking at the door of a major accounting firm with retainer fees as high as the skyscrapers that house their employees?

Or, are you going to look for a small to medium-sized accounting practice (SMP) that’s more reasonably priced and more likely to understand your needs?

The answer is obvious. It is also why most small businesses consider their accountant their most trusted advisor.

  • A majority (92.2%) of accountants provide basic accounting and bookkeeping services.
  • Only 77.7% offer business consulting services, like cash flow analysis and forecasting.

Offering cash flow consulting will give you an edge on the competition. At the same time, it will also help you forge stronger bonds with your clients.

cash flow consulting opportunity

  1. Cash flow is a small business killer

More than half of small businesses never make it past the first five years. The main culprit is cash flow.

  • Studies of the U.S. market conducted by Wasp Barcode have found that 33% of small businesses said cash flow was a top business challenge and 44% found cash flow a top accounting challenge.
  • A similar SCORE study indicated that 22% of small businesses said that cash flow was their main concern.

It’s not that these businesses don’t understand that they need to have the right amount of money to meet their financial obligations. Instead, they just don’t have the correct tools, technologies and processes in place.

By helping your clients master cash flow management, you’ll be teaching them vital survival skills. You’ll also be building mutually respectful long-term relationships.

Forbes Article: How SMEs Can Win the Battle for Positive Cash Flow 

  1. There are intuitive forecasting tools

You don’t have to go and design proprietary systems to create a powerful and meaningful cash flow analysis. Automated tools, like our free cash flow forecasting, make it simple to create an informative, intuitive report filled with key ratios, charts and graphs.

All you have to do is connect the business’ QuickBooks Online account with their free PayPie account, then run the report. The forecast is built using the near real-time data from the company’s QBO account. (Integrations with other accounting software and platforms are coming soon.)

You may run a free cash flow forecast on a monthly, weekly or even daily basis.

PayPie Cash Flow Forecast Example

  1. Technology is changing everything

“CPAs with technology: You have the power to change your customers’ lives.”

Jody Padar, CPA, MST, Accounting Today

With the rise of cloud-based technology, these three trends are changing how small business accountants are interacting with their clients:

  • Digitalization— As more small business data is available digitally, through the use of accounting software and applications, it’s also easier for accountants and bookkeepers to access this information.
  • Virtualization — Because cloud-based technologies can be accessed from any device with an internet connection, it’s no longer necessary for accountants to physically visit clients. Accountants and businesses can work together from virtually anywhere.
  • Transformation — With the greater availability of near-real-time data, accountants are moving from generalized to specialized services.
  1. Cash flow consulting builds value

“The ability to provide business intelligence from a quick analysis of data is a miracle.”

— Geoffrey Moore, technology author and business consultant

Complying with regulations and paying taxes are services that business owners see as have-to-dos. Accountants who take the creation of financial statements one step further by producing cash flow forecasts are transforming routine tasks into recurring, value-added services.

Rather than merely reporting results, cash flow consulting is a key component in business growth. Some advisors even set up monthly consultation calls or video conferences with their clients to discuss goals and objectives — literally becoming voices in the business decision-making process.

Pro Tips: Cash Flow Forecasting — What You Need to Know 

  1. Business financing goes hand-in-hand with cash flow consulting

As you help businesses better understand when, why and how the cash flows in and out of their companies, your clients may also rely on your advice for short-term and alternative lending solutions.

In addition to standard options, like term loans, lines of credit and credit cards, you can also introduce the businesses you serve to innovative financing solutions, like invoice factoring, powered by blockchain technology.

  1. Better cash flow lowers risk

The cash flow forecasts created using PayPie’s insights and analysis also contains a risk score that summarizes and reflects several key variables linked to cash flow. This indicator shows how a business is viewed by lenders, vendors and other third parties wishing to do business with them.

Helping a business improve their cash flow also improves their risk score. With a better risk profile, businesses can access funding more easily and set more favorable terms with vendors.

Cash Flow Basics: How to Read a Cash Flow Statement 

  1. Better cash flow builds confidence

As you work with your clients reviewing cash flow, setting goals, controlling costs and planning for future investments and opportunities —you’re not only improving the business’ financial health, you’re also bolstering the owner’s confidence.

As you go through a cash flow forecast, especially the day-to-day costs involved in operational cash flow, you get a better sense of where the client’s priorities lie, which concepts they understand the most and the areas that need the most improvement.

In a nutshell, you’re able to ask the hard questions and offer informed solutions that truly benefit the bottom line.

  1. Cash flow consulting makes you a better advocate

“Running a small business is about the grind, the day-to-day operations and finding a way to keep your head above water. Like the shock of cold water in the ice-bucket challenge, reality can hit you hard and all of those hours picking paint colors for the office suddenly seem wasted. Small businesses inherently overlook the technology platforms that help them manage their day to day — and that’s exactly how cash flow begins to erode.”

— Stacy Gentile, Forbes Communication Council

Managing finances isn’t always the most alluring part of owning a business, but it’s fundamental for success. Cash flow consulting takes the implementation of best practices and better tools to a new level by delivering tangible results in the form of more cash. And no one can dispute the value of money in the bank.

Be a cash flow advocate — try our free cash flow forecasting for QBO users today.

PayPie currently integrates with QuickBooks Online. Additional integrations are coming soon.

This article is informational only. It does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional.

Image via Shutterstock

Choosing a Business Banking Account

Choosing a business banking account

It’s already hard enough to open your bank account, scroll through your expenditures and remember exactly when and where you made each purchase. That task would become exponentially more difficult if you added your business expenses into the mix — you’d have to mark each payment as professional or personal, then figure out the rest.

That’s why it’s so important to open separate bank accounts for both areas of your life. Some business owners go so far as to choose two different banks — one for their professional dealings, and one for their personal expenses. The clear separation makes it simpler to stay on top of all your financial standings. Separate accounts also lead to more straightforward tax filings and improve your company’s transparency.

Of course, you can’t do it without choosing a business banking account to start. At PayPie, we know how difficult this task can be without a little guidance. As we’re also all about guiding small and medium-sized businesses, like yours, on how to improve cash flow, here are our best tips for selecting the right place to keep your money:

1. Consider the services you’ll need

It’s simple to shop for a bank that meets your personal financial needs. You know how much money you have, the type of interest rate you want and the ease with which you can find ATMs around town. But choosing a business banking account means having to tick more boxes. It’s up to you to discern which services are vital to you and your company before choosing a bank.

Every business owner’s banking needs will be different, of course, but required features tend to include:

  • Checking and business savings accounts
  • Online banking access
  • Credit cards and deposit-only cards
  • Access to discounted accounts for employees
  • Wire transfers
  • Payroll features
  • Retirement accounts and insurance
  • Discounts on other services, such as shipping and office supplies

You might want a bank that offers lending or other financial services. Some banks will provide further benefits, too, such as checking incentives, overdraft protection and discounted fees for inter-bank transfers. Depending on the ways you’ll use your bank, you can compare each company’s features before settling on the right bank for you.

Learn more about separating business and personal finances. 

2. Compare large and small banks

Well-known names in banking have reached their height for good reason. They’re convenient — if you travel from city to city, you can probably find a branch of a national bank wherever you go. They may also have better interest rates and might be able to provide a longer list of services.

But a smaller bank has a hand in the local market, which means they’ll be more interested in the success of your business. They might be more inclined to give you a loan because they know it will help the economy to bring another company into the mix. They can offer tiered interest rates to compete with bigger banks, along with other incentives. The personal touch will sometimes extend to tougher times, too. If you’re late on repayment or if you overdraft your account, for example, a local bank might not hit you with as many fees as a bigger branch would.

Contrast the merits of local banks with better-known brands when choosing a business banking account. Again, it’ll be important to know what you need before embarking on your search, so you can choose the bank that’s best for you.

3. Ask other business owners

As a small business owner, you already know the importance of networking with other business owners. You can connect in person, online or even at networking events. Regardless of how you do it, though, you’ll find fellow entrepreneurs vital in your search for the perfect business banking account.

That’s because established business owners have already charted the course you’re on right now. They’ve been through the process of choosing a business banking account based on the criteria you have in mind. They also have experience with the places you’re considering. So, reach out to your contacts and ask whom they use. They might have incentives to help you — some banks give clients referral bonuses so the conversation will be mutually beneficial.

Of course, you might find the results of these conversations inconclusive, or you might not know any business owners whose banking needs compare to your own. In that case, you have the internet at your fingertips. Do some online searches to find customer reviews of the brands you’re considering. You should always take extremely positive or negative reviews with a grain of salt. More moderate accounts of what’s good and what’s bad will be more helpful to you in your search.

4. Bond with your banker

Once you’ve landed on the right bank for you, don’t stop there. Instead, try your best to work with the same banker every time you reach out to your branch for help.

For one thing, you’ll be happy to have a familiar, trusted face guide you through something as stressful as your financial dealings. But a trusted banker will also know what types of services might suit your needs, even if you didn’t initially ask for them. They’ll find discounts or improved rates, all of which will enhance your company’s standing without much effort on your part.

Discover 7 ways to boost cash flow. 

5. Bank with confidence

Perhaps the most important tip of all when choosing a business banking account is to go with your gut. Which financial institution makes you feel the most secure? You’ll have an easier time deciding if you’ve done the research to point out the type of services you need, uncovering the banking options you have and asking for others’ opinions.

At PayPie, we’re all about making your financial needs simpler to fulfill — and banking is just one of our areas of expertise. Explore our website and see all the ways we can make your business’ finances stress-free with the click of a button.

Having a business bank account that meets your needs is just one component of managing your cash flow. At PayPie, we’re all about giving you the tools you need to manage your cash flow — starting with cash flow forecasting and risk scoring based on the business data in your accounting software.

QuickBooks Online users can get started today. (Other platforms are coming soon.)

This article is informational only and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional.

Image via Pexels.

Best Business Credit Cards in the United States

Best Business Credit Cards in the United States

This article details the best business credit cards in the United States. To see the best business credit cards in Canada, click here.

Travel miles, reward points and cash back — the reward programs for business credit cards almost as tempting as the sugary breakfast cereal with the leprechaun on the front of the box.

A business credit card can be an incredibly convenient tool to help you build a credit history, separate business and personal expenses and manage cash flow. But what are the best business credit cards in the United States and how can you tell which one will be best for your business?

In order to provide businesses using our financial management tools and reading our blog the tools they need to sustain a healthy cash flow, we decided to do a little research ourselves. Here’s what we found out about the best business credit cards in the United States:

The 15 best business credit cards in the United States

We sourced the comparison sites and the table below shows the cards that appeared time and again on other lists of the best business credit cards in the United States.

American Express®

Business Gold Rewards Card

Card Type: Charge card

Rewards: 3X points per one specified category: airfare, advertising, fuel, shipping or computer hardware and software. | 2X points the remaining categories. (3X and 2X points apply only to the first $100,000 spent.) | 1X for all other purchases.

Employee Cards: Free

Interest: As it’s a charge card, you are expected to pay in full at the end of each month. If you have to carry a balance, the interest rate is 19.99% and the penalty rate is 25.99%.

Annual Fee:  $175 – Free for the first year.

Personal Guarantee: Required

Welcome Offer: 50,000 points after you spend $5,000 in the first 3 months.

Best For: Established businesses who want flexibility in their rewards an lower annual fee.

Business Platinum Card®

Card Type: Charge card

Rewards: 5X points on flights and prepaid hotels on amextravel.com. | 1.5X points on eligible purchases of $5,000 or more. | 1x for all other purchases.

Employee Cards: Free

Interest: As it’s a charge card, you are expected to pay in full at the end of each month. If you have to carry a balance, the interest rate is 19.99% and the penalty rate is 29.99%.

Annual Fee: $450

Personal Guarantee: Required

Welcome Offer: 50,000 points after you spend $10,000 and an extra 50,000 points after you spend an additional $15,000 within the first 3 months.

Best for: Established businesses with large travel budgets. This card also gives you access to American Express Global Lounges at airports around the world.

Blue BusinessSM Plus Card

Card Type: Credit card

Rewards:  Earn 2X points on everyday business purchases up to $50,000 with no category restrictions.

Employee Cards: Free

Credit Limit: Adjusts with usage.

Interest: 0% introductory APR for the 15 months. | After that your APR will be a variable rate, 12.99%, 16.99% or 20.99%, based on your business’ creditworthiness.

Annual Fee: None

Personal Guarantee: Required

Welcome Offer: Earn 10,000 extra points after $3,000 in eligible purchases within the first 3 months.

Best For: Businesses looking for one of the longest introductory APR offers on the market.

SimplyCash® Plus

Card Type: Credit card

Rewards: 5% cash back on office supplies and mobile phone services. |  3% back on an expense category of your choosing. (5% and 3% up to the first $50,000 in purchases.)| 1% on all other purchases.

Employee Cards: Free

Buy Above Your Credit Limit: Make larger purchases and earn cash back on those purchases — even when the purchases exceed your credit limit.

Interest: 0% introductory APR for the 9 months. | After that your APR will be a variable rate, 13.99%, 18.99% or 20.99%, based on your business’ creditworthiness.

Annual Fee: None

Personal Guarantee: Required

Welcome Offer: None

Best For: Businesses who want a cash back card with high rewards and no annual fee.

Mastercard®

Bank of America® Business Advantage Cash Rewards

Card Type: Credit card

Rewards: 3% on purchases at gas stations and office supply stores. (Maximum $250,000 annually.) | 2% on purchases at restaurants. | 1% on all other purchases.

Employee Cards: Free

Interest: 0% intro APR for 9 months. | 12.99% to 22.99% variable APR thereafter.

Annual Fee: None

Personal Guarantee: Required

Welcome Offer: An additional 25% – 75% bonus on every purchase made when you join the proprietary rewards program. | $200 statement credit bonus after $500 in net purchases in the first 60 days when you apply online.

Bank of America® Business Advantage Travel Rewards

Card Type: Credit card

Rewards: 3 points per every travel dollar spent when you book through the Bank of America Travel Center. | 1.5 points for all other purchases.

Employee Cards: Free

Interest: 0% intro APR for 9 months. | 12.99% to 22.99% variable APR thereafter.

Annual Fee: None

Personal Guarantee: Not required

Welcome Offer: 25,000 bonus points after $1,000 in purchases in the first 60 days.

Best for: Businesses who want rewards points without an annual fee or personal guarantee requirement.

CitiBusiness® AAdvantage® Platinum Select®

Card Type: Credit card

Rewards:  Earn 2 miles for every $1 spent on American Airlines and for telecom, car rental and fuel purchases. Earn 1 mile for other purchases.

Employee Cards: Free

Interest: 17.49% – 25.49% APR based on your business’ financial history.

Annual Fee: $99 – Free for the first year.

Personal Guarantee: Sometimes

Welcome Offer:  Earn 70,000 miles with $4,000 in purchase in the first 4 months.

Best For: Businesses who regularly travel on American Airlines.

Bento for Business

Card Type: A pre-loaded credit card and expense management system hybrid.

Rewards: None

Employee Cards: Free

Credit Limit:  The primary account holder sets individual limits for each cardholder. They can also limit where each card is used.

Interest: None

Annual Fee: 60-day free trial. | Monthly fees ranging from free up to $149 depending on the number of cardholders.

Welcome Offer: None

Best for: Businesses that need to manage employee purchases.

Capital One® Secured

Card Type: Secured credit card

Rewards: None

Employee Cards: Free

Credit Limit: $200 initial credit line that you can increase after making your first 5 payments on time. | Requires a refundable deposit of $49, $99 or $200.

Interest: 24.99% variable APR.

Annual Fee: None

Personal Guarantee: Required

Welcome Offer: None

Best For: Building or rebuilding credit.

Wells Fargo Business Secured Credit Card

Card Type: Secured credit card

Rewards:  Your choice of cash back or reward point program. | Enrollment in either rewards programs is optional.

Employee Cards: $25

Credit Limit: $500 to $25,000 credit line based on the amount you deposit in your business banking account.

Interest: Prime + 11.90% on purchases. | Prime + 20.74% on cash advances. | Up to 21-day grace period.

Annual Fee: $25

Personal Guarantee: Required

Welcome Offer: Join the rewards program when you get your card and earn 1.5% cash back on qualified purchases for the life of the account.

Best For: Building or rebuilding credit.

Visa®

Capital One Spark Cash for Business

Card Type: Credit card

Rewards: Unlimited 2% cash back with no minimum to redeem.

Employee Cards: Free

Interest 18.74% variable APR

Annual Fee: $95 — Free for the first year.

Personal Guarantee: Required

Welcome Offer: $500 cash bonus with $4,500 on purchases in the first 3 months.

Best For: Businesses who simply want one flat rewards rate.

Capital One Spark Classic for Business

Card Type: Credit card

Rewards: Unlimited 1% cash back with no minimum to redeem.

Employee Cards: Free

Interest: 24.74% variable APR

Annual Fee: None  

Personal Guarantee: Required

Welcome Offer: None

Best For: Businesses that can’t qualify for the Spark One Cash card.

Chase Ink Business CashSM

Card Type: Credit card

Rewards: Earn 5% cash back at office supply stores and on internet, cable and phone services. | 2% cash back on spent at gas stations and restaurants. (5% and 2% up to the first $25,000 in purchases.) | 1% on all other purchases.

Employee Cards: Free

Interest:  0% intro APR for 12 months. | 14.99%–20.99% variable APR thereafter.

Annual Fee: None

Personal Guarantee: Required

Welcome Offer: $500 bonus cash back after you spend $3,000 in the first 3 months.

Best For: Flexible cash back rewards with no annual fee.

Chase Ink BusinessSM Preferred

Card Type: Credit card

Rewards: Earn 3 points per $1 on the first $150,000 spent on travel, shipping, internet, cable and phone services and advertising purchases made with social media sites and search engines.

Employee Cards: Free

Interest: 17.74% – 22.74% variable APR

Annual Fee: $95

Personal Guarantee: Required

Welcome Offer: Earn 80,000 bonus points after you spend $5,000 in the first 3 months. | Earn 20,000 bonus points when you refer another business owner who signs up for the same card.

Best for: Businesses that regularly travel to trade shows or advertise regularly.

Read More: 10 Best Businesses for Cash Flow

Checklist: Choosing the best business credit card for your business

You’ve just read our list of the best business credit cards in the United States, now comes the challenging part — picking the best one for your business. Use this checklist of things to consider and questions to ask to help narrow down the best options for your business.

The following sections after this checklist will also help you prepare for the application process and do the math as your final point of comparison. Then we wrap up by revealing our top picks.

Figure out if your business needs a charge card, credit card or secured credit card

While you know there are several main credit card brands, you probably didn’t know that there are three types of cards.

1. Charge cards: These cards have no pre-set limits, which can be helpful whenever you need to make large purchases. However, you must pay the balance each month in full. If there are times when you have to carry a balance, the interest and penalty rates are substantially higher than those for similar credit cards.

In our list of the best credit cards in the United States, two charge cards from American Express made the list — the Business Gold Rewards  Card and Business Platinum Card. For these cards, users can earn rewards points or travel miles at a higher rate than with other comparable credit cards. You also have to have a pretty solid credit history in order to qualify for these cards.

2. Credit cards: These are the traditional credit cards (revolving business credit cards) that you’re most familiar with. There’s a set limit you can spend each month and they’re more flexible in terms of carrying a balance. Because businesses are more likely to carry a balance with a credit card, the interest and penalty rates are lower than with charge cards.

If you like to earn rewards, you can choose from reward points, travel miles or cash back. Many of the best business credit cards in the United States also offer a 0% introductory APR. If you’re considering a business credit card, making a large purchase or changing cards, the 0% offers are pretty enticing. Just make sure you know what the interest and annual fees will be when these offers expire.

3. Secured business credit cards: Designed for newer business or business with lower credit ratings, secured cards offer a way to build or repair credit. If you can’t qualify for a traditional business credit card, a secured card can also be a first step to getting a standard business credit card.

With a secured card, you have a pre-set limit. In certain cases, you have to have the exact amount as the limit in your business checking or savings account. The issuing company will explain the requirements. Once you’ve established a record of on-time payments, you can increase your monthly limits and/or switch to a regular (unsecured) business credit card.

The interest rates depend on how the card is structured as well as your business’ credit history. In general, the rates are competitive with traditional business credit cards.

Know how your business credit card affects your credit history

Before you apply for a business credit card, even if it’s one of the best business credit cards in the United States, find out if your application will be reported on your business credit history. Some applications may also trigger a record on the owner’s personal credit history, so make sure you know ahead of time.

Certain credit card companies also report to the major business credit bureaus. Again, find out if they report both good and bad financial transactions – or only delinquent or late payments. This kind of information is invaluable for building and maintaining your business and personal credit histories.

This table from NerdWallet summarizes which banks report business credit card activity to the credit bureaus.

US credit cards that report to credit bureaus

Learn More: What’s a Business Credit Report?

Know what the interest rate for your business credit card will be

The interest rates for the best business credit cards in the United States definitely vary. It’s also important to note that unlike consumer credit cards, business credit card companies don’t have to notify customers about interest rate changes.

While a credit card company can’t raise the interest rate on a past-due amount until a period of 60 days has passed, business credit card companies aren’t held to this standard.

As you investigate business credit cards for your business, find out:

  • How long the introductory rates are valid.
  • Exactly which rate you qualify for and the reasons why.
  • The rates for late payments, cash advances and balance transfers.
  • If you’ll be notified in advance of upcoming increases.
  • If your payments will be applied to the balance with the highest interest first.

Understand how the annual fee works

With any of the top business credit cards in the United States, you’ll want to know how much the annual fee will be and if you’ll be notified of any increases. You should also ask if the annual fee is applied to employee cards too.

According to creditcards.com, the higher the fee, the greater the rewards. But, you also have to factor in the value of the rewards and if they matter to your business. Later in this article, we’ll be doing the math on business credit cards. This will show you how to compare rewards cards to cards with lower or no annual fees.

Note: Another consideration is that business credit card annual fees are also valid business tax deductions. When you’re making your decision, factor in the fact that you can deduct your annual fee at tax time.   

Determine if you’ll need employee cards

Need to offer a way for employees to manage expenses or purchase items as a routine part of doing business? Most business credit cards let business add employees to the main credit card amount. While many on our list of the best business credit cards in the United States, there’s at least one that charges an annual fee for each employee card.

Some business credit card companies also place a limit on the number of free employee cards they’ll issue. One more thing: Be sure to verify if the employee cards also include any fraud or purchase protection plans.

Establish if your business will benefit from a rewards program

Within our list of the best business credit cards in the United States, there are three main types of reward programs: points, air miles and cash back. Beyond this, the differences are in how the programs are applied.

Some have varying rates of returns based on specific spending categories. Other credit card companies give you more air miles when you use their travel services. (Meaning you should research their online travel services to see if they match your company needs before signing up for rewards.)

Again, it all comes back to doing the math and asking the right questions. How much do you have to spend to earn your rewards and what’s the value of the rewards over time? Plus, some rewards have limits and expiration dates too.

Tools, like ValuePengin’s rewards calculator, can also help you determine the long-term value of the rewards. According to their formula, using an average monthly spend of $1,430, the Chase Ink Business CashSM card had the highest two-year rewards value.

Know if there are places where your business credit card is accepted or not accepted

While American Express, Mastercard and Visa are widely accepted, there are instances where they aren’t. If your business makes regular purchases at certain retailers or wholesalers, make sure you know which types of credit cards these merchants accept. It’s one of those “know before you go” type things.

Ask if there’s a foreign transaction fee

If you travel or operate internationally, foreign transaction fees can add up. Read the fine print or as a service representative to verify if there’s a foreign transaction fee before you sign on the dotted line.

More Tips: 7 Ways to Boost Cash Flow

Understand if you’ll be dealing with the credit card company itself or the issuing bank

In the United States, Mastercard and Visa are only issued through banks. This means you’ll be establishing a relationship with the issuing bank, which may also have a service agreement with Visa or Mastercard to manage cardholder needs. With American Express, you work with American Express. It’s mostly just how they’ve set up their business models. As long as you feel that you’ll get the service and support you need, that’s all you need to know.

Applying for a business credit card

Applying for a credit card is a business transaction and you’ll want to have all the required information, whether you apply online, over the phone or in person at the bank. Here’s what you’ll need to apply for any of the best business credit cards in the United States:

  • Employer Identification Number (EIN) — If your business is incorporated, then you would have received this number when you registered your business with the Internal Revenue Service (IRS). If you’re a sole proprietor, your Social Security Number is also your EIN.
  • Business name and address — When you provide these items, make sure they match the information on your tax records. Otherwise, the issuing company may have a harder time verifying your business details.
  • Business financial information — This includes your business banking accounts and may include your previous tax filings to help substantiate your income and overall financial health.
  • Personal financial information — If you own more than 25% of the business, you will need to provide your legal name, date of birth, SSN, home address and percentage of ownership.
  • Your business plans, books and budget — While each of these items informs each other, they also help creditors evaluate the overall strength of your business. Having your books in order and providing copies of your recent financial statements can go a long way in showing that your business is creditworthy.

Before you apply: Verify if you’ll have to provide a personal guarantee

A personal guarantee is pretty much what it sounds like. It’s a promise that the business owner or applicant will be personally responsible if the business fails to pay its debts. It doesn’t matter if you’re incorporated or not. The laws are on the side of the card issuers on this one. This is why you need to find out if you have to provide a personal guarantee as part of the application process.

If you already have a business relationship with the issuing bank along, along with a record of on-time payments and low debt-to-equity ratio, you might be able to negotiate the waiving of the personal guarantee. If not right from the start, you can also try again after a few months of paying your credit card on time.

In general, find out if a guarantee is required and if there are any criteria for exclusion that your business can meet. Also know that there are cards on our list of the best business credit cards in the United States, like the Bank of America® Business Advantage Travel Rewards card that don’t require a personal guarantee.

Best Practices: Separating Business and Personal Finances 

Calculating the costs and rewards of business credit cards 

Brace yourself, this is the math part. If you’re not a math person, you will be when you see how important determining costs and comparing rewards is in choosing the best business credit cards in the United States.

Start by estimating your average owing balance each month. For these examples, we’ll use $4,000. Keep in mind that these examples assume you’re not using your business credit card again until the owing balance is paid.

Example # 1 — Comparing annual fees and interest rates (excluding rewards and intro offers)

In this example, we’re looking at interest rates and annual fees only. We’re leaving out any introductory 0% APR and waiving of the annual fee offers.

Card # 1 — CitiBusiness® AAdvantage® Platinum Select®
$4,000 x 17.49% (the lowest variable rate) = $699.60 in interest charges.
$699.60 + $99 annual fee = $798.60 total cost to carry a balance

Card # 2 — Capital One Spark Cash for Business
$4,000 x 18.74% (the lowest variable rate) = $749.60
$749.60 + $95 annual fee = $848.60 total cost to carry a balance

The 1.25% difference in interest had a lot more impact than the $5 separating the annual fees. With close to half of the cards on our list setting interest rates based on financial health, you can clearly see how solid financial health helps out.

Example # 2 — Comparing the value of rewards and intro offers

In order to compare “apples” to “apples” — we’re going to compare two cash back cards. We also factor in the intro offers to show the costs the once the offers expire.

Card # 1 — Capital One Spark Cash for Business

In the first year, with the intro offers:
$4,000 X 18.74% = $749.60
$749.60 + $0 annual fee = $749.00
$4,000 X 2% cash back = $80 + $500 cash bonus = $580
$740.00 – $580 = $169 total cost when you carry a balance in the first year.

Following years:
$4,000 X 18.74% = $749.60
$749.60 + $95 annual fee = $848.60
$4,000 X 2% cash back = $80
$846.60 – $80 = $766 total cost when you carry a balance thereafter.

Card # 2 — Capital One Spark Classic for Business

Every year (This card has no annual fee or intro offers):
$4,000 X 24.74% = $989.60
$989.60 + $0 annual fee = $989.6
$4,000 X 1% cash back = $40
$986.60 – $40 = $949.60 total cost when you carry a balance.

The lower interest rate and higher cash back percentage of the Spark Cash for Business card offset the costs of the annual fee. When you compare the difference in cost between the first year and the following year without the offers, brace yourself for a little sticker shock.

Our choice for the best business credit card in the United States

Our top choice is the American Express SimplyCash® Plus card. Now that the suspense is over, we’ll explain our criteria. First, in terms of rewards, cash is the most tangible. You don’t have to convert it to anything, you just use it. This is why compared all the cash back cards on our list of the best business credit cards in the United States to determine the best value.

  • Cash back: We overlooked any first-year offers, like 0% APR for 9 to 12 months or no annual fee. Then we just ran the numbers. As the cash back rewards for the SimplyCash® Plus card were tiered, we broke the reward amounts on our $4,000 monthly spend number down this way: $2,000 x 5% + 2,000 x 3% + $1,000 x 1% = $100 + $60 + $10 = $170 cash back per month. (Assuming that you’re going to spend more on the categories where you earn the most.)
  • Cost of carrying a balance: We then calculated, that if you carried this $4,000 balance over for one billing cycle at 20.99% (the highest APR), you’d pay $839.60 in interest. Subtracting the cash rewards of $170, you end up with a cost of $669.60 to carry a balance. This was the lowest cost of all the cash back cards. Plus, there’s no annual fee for the lifetime of the card.
  • Introductory offers: If you take advantage of the introductory offers, you really do well with no interest for the first nine months. Meaning for nine months, all you do is accrue cash rewards. This card also has the highest maximum, $50,000 each year for the 5% and 3% categories.
  • Flexible spending: With this card, you can “buy above your limit” when making large purchases. There are no overlimit fees and you simply need to pay the overage amount in full when payment is due.
  • Flies in the ointment: The main drawback is that the categories are set to narrow parameters that suit a white-collar professional business more so than a manufacturer, contractor or retailer. The highest level of cash back is at office supply stores and US-based mobile phone providers. The second highest level also favors travel and tech over raw materials. If you travel or do business internationally, this card also has a foreign transaction fee.

Our second and third runners-up for the best business credit cards in the United States

At $689 to carry a balance, the Chase Ink Business CashSM card comes a close second to the American Express SimplyCash® Plus card. Its cash back rewards are structured similarly to the top card, but its second tier of rewards is only 2% cash back at gas stations and restaurants and both tiers have a $25,000 annual limit.

With its flat 2% cash back on all qualified purchases, the Capital One Spark Cash for Business card the top contender for businesses who don’t want to fuss with categories. Granted the cash back when you spend $4,000 is a mere $80. When you add interest and the annual fee, the total cost to carry a balance is $766. In the first year, waiving of the annual fee and the $500 cash bonus when you spend $4,500 in the first three months brings the cost to carry a balance down to $169.

Closing thoughts: Know all the tools available for accessing funds and managing cash flow

A business credit card, even if it’s one of the best business credit cards in the United States, is a financial tool. But, it’s not the only tool at your disposal to help you manage your cash flow.

Start by analyzing and forecasting your cash flow to get a clearer picture of how money moves through your business on a regular basis. The more you track and monitor your financials, the more aware you’ll be of the patterns and which variables have the greatest impact.

You should also be aware of the range of traditional and non-traditional short-term financing options available to businesses. Know all the tools in your toolbox from term loans and lines of credit to invoice factoring and financing. There’s always a cost for borrowing money, the key is knowing which costs make the most sense for your business and the specific instance in which you need funding.

Finally, pay attention to how other businesses and financial service providers view your business in terms of risk. Monitor your credit scores and use our proprietary risk score to assess your standing.

QuickBooks online users can get started right now.
(Other integrations are coming soon.)

This information does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional. It is also not an advertisement or endorsement for any of the banks or credit cards name. The credit card details are valid as of the publishing of this post.

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7 Ways to Boost Cash Flow

boost business cash flow hero image

A successful business is all about the bottom line — are you profitable or are you losing money?

For many businesses, this can be tough at the start. Imagine starting a business, for example. Leasing a space, filling it with furniture, buying equipment and hiring staff all costs a lot of money. And cash doesn’t always come in the second you open the doors.

It’s a frustrating reality when you know you’re on the way to bringing in revenue down the line but you have to sustain your business until that happens. In fact, even established businesses can have cash flow issues.

There’s an answer to your problem — boosting cash flow

Having more cash on hand by using targeted strategies to boost cash flow helps keep a company afloat until it starts turning over more significant profits and paying for itself.

To increase cash flow, you have to find the right balance between spending, cost-cutting and other factors that contribute to the bottom line. PayPie understands that can be difficult to do without a little help or the right tools.

Seven proven methods to boost cash flow

These tactics have successfully helped others bring in cash in the past and can help secure your business’s future.

1. Know your options

Some ways to boost cash flow are intuitive, or they’re otherwise easy to discern on your own. If you’re a newbie, though, you might be better off with a helping hand as you endeavor to increase the liquid assets you have on hand. You can rely on a short-term lender or use software to highlight the areas in which you can cut spending.

For example, you might be able to take advantage of invoice factoring. This short-term lending option will have a factor pay you a percentage of an invoice. Then, they make it their mission to gather any outstanding payments. They keep a percentage, then give the remainder to you. Their initial payment provides you with the cash you need as does their follow-up on the initial invoice.

A cash flow forecasting tool helps you see the patterns in how the money is flowing in and out of your business. It highlights the areas that are draining your business’s cash flow and pinpoints where the cash is coming in — telling you where you can focus your efforts to increase your bottom line even more.

Learn More: How to Read a Cash Flow Statement.

2. Sell unused equipment and inventory

The trick to understanding how to boost cash flow is to be extremely critical with every aspect of your business. For starters, take a look at your inventory. Anything you have left over that won’t be used in the next year should be sold as soon as possible — that is, unless you won’t incur any costs from keeping it that long.

Equipment should also be scrutinized. Outdated machinery or technology you no longer use can bring in a good chunk of change. Plus, getting rid of something that’s taking up space can free up square footage for a more updated piece of machinery. This can serve to boost your business’s productivity. Selling the old model can also bring in the cash you need to buy a newer version.

3. Take bigger deposits

Chances are good your company already requires a deposit for custom orders, large orders or with new customers. Without that guarantee, the client could back out, leaving you with highly customized items or a surplus of products that you’ll have a hard time selling to others.

With that in mind, evaluate how much you require as a down payment before you begin working. You can justifiably ask for half the cost of the total project before you start — if you do not require that much now, hike your commission rate. Not only will it increase your cash flow, but it’ll also ensure clients are serious about paying you when the project’s complete. They will want a return on their investment, after all.

4. Lease — for now

It might seem counterintuitive to lease since you know leasing means you’ll end up paying more for your space or your supplies in the long run. However, you shouldn’t buy things outright when cash is tight. Instead, see if you can lease your workspace or the equipment you need to make your business a reality. That’ll give you more cash to use for day-to-day expenses and, once you’re running productively, you can invest more cash to buy the items you need.

Learn More: Cash Flow Basics — Key Concepts and Terms.

5. Scrutinize payment terms

You have money coming in and going out — how much time is there between these two events? Another way to boost cash flow is to evaluate the terms you share with your suppliers as well as your customers. If you’re required to pay the former within 20 days, but your customers have 30 days to pay for your services, then you have a considerable amount of time in which you’re reliant on your own cash.

You might want to reconsider the terms of payment with either end of your production process. Reaching out to new suppliers might help you find a bigger window for repayment. You might also see an even cheaper option that makes it easier for you to float between spending and receiving cash from customers.

Of course, your pre-existing supplier might be willing to negotiate with you, too. As long as they know you’re going to be a client for a considerable amount of time. Just make sure you’re smart about these discussions — take your time to find the right balance between your needs and your supplier’s needs. To that end, your clients might have to start paying for your services sooner to make the time between payments a bit easier on you.

6. Incentivize and penalize

In a similar vein, you might want to find ways to encourage customers to pay you ahead of schedule. On the one hand, you can come up with an incentive for them to pay early. A small discount is unlikely to hurt your bottom line, but it could make a big difference to clients. Knowing they’ll get this percentage off their bill will probably be enough to inspire them to get their payments in on time, thus putting cash in your pocket ASAP.

You might also consider implementing a penalty for customers who are routinely late with their payments. Adding interest to a standing debt, for example, will spur them to pay you back with haste. When they do, you’ll at least receive a little extra for your trouble.

7. Re-evaluate your prices

Selecting the proper price for your products is a delicate balance. Larger companies have their own tricks for doing it, but you might’ve gone with a simpler strategy — a number just enough to turn a profit, for example.

Unfortunately, undervaluing your products reduces the cash you receive per purchase, and it also makes your creation seem less valuable than it is. Customers and clients won’t take you seriously. If your number is too high, you won’t be considered, either. Instead, you’ll be lost in the fray to competitors who have chosen a better price for their products.

Don’t be afraid to adjust prices to boost cash flow. For example, slightly increasing prices won’t push customers away, but it will give you more money and add perceived value to your products.

Read More: Cash Flow Problems: 6 Top Causes.

Keep it flowing

No matter how great your business idea is, you need cash to keep it going. Implement any one of these tactics to boost cash flow and guide your business through any cash shortages.

You can also enlist the help of PayPie’s free cash flow forecasting to personalize your path to a healthy cash flow. No matter which avenue you choose, you, your customers and your investors will be glad you did.

PayPie currently integrates with QuickBooks Online to access the cash flow forecasting and risk scoring tools. Additional integrations are coming soon.

This article is informational only and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional.

Image via Pexels.

Short-Term vs Long-Term Business Financing

short-term vs long-term financing hero image

You need to find a solution for financing your small business. A momentary sense of panic hits. Whether it’s for a growth opportunity or a short-term cash infusion to cover expenses, it’s normal to feel overwhelmed or anxious as you approach the borrowing process.

Navigating the lending landscape can be daunting — but it doesn’t have to be this way. With a basic understanding — starting with the difference between short-term vs long-term business financing — you can move forward with greater confidence.

Short-term vs long-term business financing

As their names imply, the primary difference between short-term and long-term business financing is how long you have to pay back the loan. Typically, long-term lending options are paid back over a number of years, while short-term lending options are paid back over a period of months or as little as two years.

Your choice of short-term vs long-term financing will also be determined by:

  • The amount you need to borrow.
  • How quickly you need the funds.
  • The type of lender you’ll borrow from.
  • The type of collateral you’ll provide.
  • Your business’ overall financial health.

From 2015 - 2017, nearly 42 % of small businesses used short-term financing to borrow $10,000 - $50,000.

Short-term vs long-term business financing amounts

Short-term business financing options are for smaller amounts while long-term financing options are for larger amounts. Because short-term financing is for smaller amounts, you pay them back more quickly at a higher interest rate and there’s a shorter approval process. As long-term business financing options are for larger amounts, there’s a longer, more rigorous approval process and it takes more time to pay them back. However, the interest rate is lower than with a short-term loan.

The figures vary, but a rough estimate is that short-term lending amounts are less than $250,000. Long-term lending amounts are in the $500,000 range.

Learn More: How to Read a Cash Flow Statement.

Short-term vs long-term business financing sources

As you’d expect, brick-and-mortar banks are the most common source for long-term business financing. If you’re looking for a traditional short-term “term loan” where you complete a detailed application, including documentation to prove that you repay that amount, you can also go through a large or small bank. (Think sitting across from someone in a business suit.)

However, the market for short-term financial lending has grown rapidly. As a result, businesses can choose from a range of short-term lending options. Again, this doesn’t exclude banks. It simply expands your range of options to include online lenders, with quick approval times and other short-term financing options you may not be aware of. (Plus, no business suits.)  

According to a recent study, from 2015 to 2017 the amount of small business online lending activity increased 50% — representing $10 billion in financing. The same study found that approximately 42 % of small businesses borrowed between $10,000 and $50,000 with the average being $55,498.

online business financing infographic
(PRNewsfoto/ETA)

Traditional short-term business financing options

If you’re not sure you want a traditional term loan, you can also look into a business line of credit as a short-term financing option. A line of credit is different than a loan as it sets up a pre-determined amount that you can draw from whenever you need. A business credit card is also another more traditional short-term business financing option.

Because loans, lines of credit and credit cards are the road more traveled, they also require a more in-depth application process and proof of a stable payment and financial history. In other words, your business has to have a solid credit history and financial track record.

Your payment history for loans, lines of credit and credit cards will also be recorded in your credit history. As will any applications for these forms of financing.

Read More: What’s a Business Credit Report?

Not-so-traditional short-term business financing options

While invoice factoring and invoice financing have both been around since the first bazaars opened in ancient Mesopotamia, many businesses owners don’t even know these options exist.

Invoice factoring and financing let businesses who have incoming cash flow tied up in outstanding invoices use these invoices to access short-term funding quickly and easily. While banks don’t offer this type of asset-based financing, online lenders do. In fact, this type of lending is now a multi-trillion-dollar industry.

Similar to invoice-based lending, there are similarly structured short-term financing options that let businesses use their inventory or retail sales as collateral. (A little research can take you a long way in identifying your options.)

Benefits of online short-term business financing

With online financing, such as invoice factoring, businesses don’t have to go through a lengthy application process as they would with a traditional lender. The primary criteria are the invoice, the customer’s payment history and the business’ risk profile.

As a result, the approval process is much quicker and once the business has established a relationship with the lender, the turnaround times can be even faster.

What’s the Difference: Invoice Factoring vs Invoice Financing.

Online lenders and asset-based financing

Online lenders are also more familiar with small businesses. They understand that there are ups and downs with a business’ cash flow and are more willing to work with newer businesses and businesses experiencing cash flow crisis.

Unlike traditional loans, lines of credit and credit cards, when you use asset-based lending, there’s no impact on your business credit history. Online lenders don’t use the traditional credit rating bureaus, nor do they report to them. The relationship you form is with your lender only.

A short-term vs long-term business financing must-know:
How technology can help you manage your cash flow

At PayPie we’re laying the groundwork to bring small to medium-sized enterprises (SMEs) access to affordable funding. First, we’ve developed insightful tools like our free cash flow forecasting that includes a proprietary risk score.

Each report gives a business insights and analysis into how its cash is flowing in and out of their business. In turn, the risk score is an assessment of how other businesses and lenders view your business in terms of establishing financial relationships.

This service is available — free of charge – for any QuickBooks Online user. All you have to do is create a PayPie account, connect your QBO account and run your report. (Integrations with other accounting applications are coming soon.)

We’re working with regulatory authorities to ensure that our invoice factoring will meet all legal and business standards. To find out when this service will be available, register here.

This article is informational only and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional.

Image via Pexels.

Invoice Factoring vs Invoice Financing

invoice factoring vs invoice financing application image

Invoice factoring vs invoice financing. What’s the difference and why do these lending options exist in the first place? But, first, does this story sound familiar?

At your business, orders are coming in at a consistent pace and you expect payment on a large invoice from one of your most reliable customers in a week or two. Your customer is a little bit late paying you, but you can trust them. The problem is, you have to pay your employees in a few days and you’re a little low on cash.

Thanks to technology and innovators, like PayPie, who’ve realized the inherent need for better short-term lending options for small businesses, your outstanding invoices are assets that can be used to get the funding you so desperately need.

24% of SMEs now turn to alternative small business financing, like invoice factoring and invoice financing

Read More: Why You Should Separate Business and Personal Finances. 

It’s hard for SMEs to find short-term business financing

According to the 2017 Small Business Credit Survey, some of the most common financial challenges many small businesses face are funding short-term operational costs, like wages, buying the materials needed to fill a large purchase order or just paying the bills.

The problem: Traditional brick-and-mortar banks aren’t really set up to handle this kind of short-term lending designed to solve a cash flow crunch. Bank are averse to risk and lower collateral levels, requiring more than the promise of a paid invoice. The approval process slower and less certain, which is also why less than half of all SMEs seek business financing from either large or small banks.

The solution: 24% of SMEs now turn to alternative small business financing, like invoice factoring and invoice financing, from online lenders who offer these options. For many of these businesses, these options are the answer to their cash flow crisis.

Invoice factoring vs invoice financing? They are both good options when you’re in a pinch and you need cash to meet your day-to-day responsibilities.

How SMEs are turning unpaid invoices into cash more quickly

Manufacturers, wholesalers, retailers, distributors and service-based businesses often have a lot of operational cash flow tied up in unpaid invoices (accounts receivables).

Either through payment terms, timing, lateness or other factors, the cycle of cash coming into the company gets out of sync with the timing of expenses, like payroll, rent, utilities and the cost of materials.

Both invoice factoring and invoice financing were developed as solutions these kinds of short-term cash flow problems.

Many SMEs need better short-term options to fund wages, purchase materials or just pay the bills

Invoice factoring vs invoice financing: What they are  

Invoice factoring and financing are two forms of asset-based lending. In both cases, the assets you’re leveraging are your unpaid invoices. The main difference is who collects the final payment from the customer.

With invoice factoring (accounts receivable factoring), the lender (factor) purchases your invoice by paying you a percentage of the outstanding amount (invoice discounting). The factor then handles the process of collecting the invoice payment. Once the customer pays the factor, the remaining amount is factored back to you — minus any fees and a set percentage for the transaction.

With invoice financing, your invoice is the collateral and the lender pays you a percentage of the invoice. In this case, you handle getting payment from your customer. Once your customer pays you, you pay the lender back — with fees and interest included. Depending on your arrangement with the lender, you may receive a final cash sum once you pass along your repayment.

The factoring industry, including both invoice factoring and invoice financing, is a $3 trillion business

Read More: Cash Flow 101. 

How the fees and percentages are determined for invoice factoring and invoice financing

When you research choosing invoice factoring vs invoice financing, you’ll see a range of percentages and rates for processing fees.

The lender sets the processing fee. The percentage you’ll receive from your invoice is a function of the size of the invoice and how the lender views your business and your customer’s business in terms of risk.

The better your business’ financial health and risk profile, the higher percentage you’ll receive when either factoring or financing your invoices.

Invoice factoring vs invoice financing: How the difference affects your business

Because the factor takes over the burden of collecting payment, invoice factoring can really help small businesses that simply don’t have the time to chase down outstanding invoices.

The counterpoint is that your customers may find out that you’re using a factoring service when they’re contacted for collections.

If you prefer to keep control over your collections processes, you may opt for invoice financing over invoice factoring.

Invoice factoring vs invoice financing: How do you choose?

The choice always comes back to what’s right for your business. It’s possible that your customers may not be bothered by invoice factoring if you take the time to communicate with them in advance of factoring the invoice.

But, maybe you just prefer to be the one to control the collections. Or, maybe the lender you prefer only offers one or the other. In the end, it’s all about your personal comfort level.

The benefits of invoice factoring and financing

The approval process for both invoice factoring and invoice financing is faster and friendlier. This is especially helpful for new businesses with only a few years of financial history, businesses who need cash quickly and those who don’t want to gather every form of documentation since the stone age.

Unlike traditional loans that have multiple payments structured in regular intervals spread over several months or years, with invoice factoring and invoice financing you only pay the fees once per invoice. There are also only two payments: You get the bulk of your cash when the invoice is factored or financed and the remaining balance when the invoice is paid.

Learn More: How to Read a Cash Flow Statement.

How long have invoice factoring and invoice financing been around?

As long as there have been businesses supplying services, goods and materials, there have been businesses waiting to be paid.

In fact, asset-based financing dates back to early Mesopotamia during King Hammurabi’s time. This kind of short-term business lending helped fuel the textile industry during the industrial revolution. Asset-based lending continued to gain traction in modern economies as traditional lending models tightened.

Today, the factoring industry, including both invoice factoring and invoice financing, is a $3 trillion business.

What’s next for asset-based lending?

That’s where PayPie comes in. We will transform the way businesses and lenders connect by using blockchain technology to securely and easily trade information. A single ledger technology, blockchain is a way for businesses and lenders to share the same information in near real-time.

As we’re laying the groundwork for our business financing opportunities, we’re also providing sophisticated cash flow forecasting and risk assessment that gives each business a better idea of where they stand in terms of cash flow. (Click here to be notified when our financing solutions are available.)

Get your free cash flow forecast

Our insights and analysis are free. Your dynamic report will give you all the charts and graphs you need to understand the crucial elements affecting your cash flow. It will also contain a proprietary risk score showing how potential lenders might evaluate your business in comparison to others.

If you’re a QuickBooks Online user, all you have to do is sign up for PayPie then connect your account. (Future accounting platform integrations are coming soon.)


PayPie Cash Flow Forecast Example

This article is informational only and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional.

Image via Pexels.

 

Cash Flow Problems: 6 Top Causes

cash flow problems top causes

Many small businesses are only one late invoice away from a cash flow crisis. They face serious risks of losing everything they’ve worked so hard to build. One of the biggest reasons small businesses fail is due to cash flow problems.

Time and again, study after study shows that when a business fails, it’s due to poor cash flow. Twenty-two percent of small businesses say that cash flow is a challenge. That’s a pretty sobering thought.

Cash flow has the biggest impact out of almost anything else you can imagine. Fortunately, there are certain factors that lead to cash flow issues or a cash flow crisis. Knowing these factors lets you better protect your business.

This is the reason why PayPie wanted to provide you with six of the top causes of cash flow problems you’ll want to avoid.

Read More: Reporting, Cash Flow and Your Business’ Financial Health.

1. Lack of an Emergency Fund

No matter what type of business you run, there will be times when business booms. There will also be times when business stutters. When cash flows in, set some of the profit aside in an emergency fund.

You never know what life might throw your way, so having enough funds to cover a catastrophe is smart. If you’re one late invoice from failing — imagine the relief of having an emergency fund during to respond to unexpected cash flow problems.

Ideally, you should start your business with enough funds in place to cover emergencies, unexpected expenses and cash flow issues. However, if you’re already in business, you might not have planned for such a fund. In this case, throw every extra bit of money you can into your emergency fund until you have enough to cover any major issue.

2. Poor Invoicing Practices

Keep cash flowing into your business by invoicing on a schedule and following up on unpaid invoices. Most business people become so busy building their businesses they let paperwork fall behind, which can lead to cash flow problems.

If you don’t invoice your customers, they aren’t likely to pay you. Even if you have invoiced them, you may need to follow up. Remember they are busy, too.

You may also want to run a quick credit check on new clients. If they have poor credit, request at least a portion of the payment up front and as the work is completed. If you can’t keep up with invoicing, try investing in a virtual assistant to keep up on such matters for you. Online software also allows you to automate invoicing and reminders for unpaid invoices.

3. Unsynced Credit Terms

When setting up the credit terms for your customers, you also need to look at the credit terms from your suppliers. If your suppliers offer net-30 and you offer your customers net-60, you’ll likely encounter cash flow issues. Net-days can translate to nearly any number. Some suppliers only offer 15 days  (net-15), for example. Seek suppliers with the most generous net-days terms you can find.

Take the time to study your books and discover what terms each of your suppliers offer. Your terms to your customers should be less than the shortest payment time to your suppliers. This gives you some room in case your customer pays a bit late. The last thing you want is to owe your supplier well before your customer owes you.

A free cash flow forecast from PayPie will also give you insights into your accounts receivable cycle. Armed with this information, you can help anticipate and prevent a future cash flow crisis.

4. Growing Pains

Growing at a rapid pace is something every business owner dreams of. Then it happens, and you realize you don’t have the funds to supply that growth. Imagine a scenario where you’re mentioned by a social media influencer.

You suddenly have 100 new customers you didn’t have last month. Where does the money come from to buy the goods to supply those customers or pay the employees to provide a service?

When you gain an influx of new customers all at once, you then have to supply those customers. But, you haven’t been paid by them yet.

One way to avoid this is to change your terms before the growth hits. Ask for at least some payment up front before you send items to customers or begin work. Make sure it is enough to cover your expenses. When the customer pays the remainder of the invoice, you’ll get your profit. It’s easier to wait on profit than to hit negative numbers on the books.

Read More: Cash Flow Forecasting: What You Need to Know.

5. Not Monitoring Expenses

Over time, expenses creep in that you might not have budgeted for. Perhaps a supplier raises their prices, and you’re too busy to seek a new supplier. Perhaps your monthly rent goes up, and it’s too much work to move to a new location.

Whatever the cause of these creeping costs, if you don’t monitor them closely, the resulting cash flow problems can potentially overtake your business.

At least once per quarter, take the time to sit down and review your costs. Look at wages, supplier costs, rent and even things such as utilities. Where can you cut down on the costs or implement policies to reduce expenses?

6. Not Planning for Seasonal Fluctuations

Every business on the planet has slow seasons. For retail establishments, this is traditionally January and February. For other industries, it might be the winter months or the summer months or anything in between. Not planning for these fluctuations leaves you with unneeded inventory and lack of funding.

Don’t wait for the fluctuations to cause cash flow problems. Plan ahead. If you know that winter is slow for your business, then cut back on inventory the month or two before the slow season hits. Plan promotions ahead to up your income during these months, or use the time to travel to trade shows and drum up new business and clients.

Cash Flow Woes

Almost every business experiences cash flow problems at some point. Knowing the causes of cash flow issues allows you to avoid the inevitable pitfalls. With a little pre-planning and a lot of organization, your business will run like a well-oiled machine.

Instead of stunting your growth or killing your business entirely, overcoming a cash flow crisis gives a competitive edge by realizing the value of having plans in place.

Wondering just how much cash flow you need to keep your business healthy and thriving? PayPie offers cash flow forecasting.*

Get a free cash flow forecast today and get a handle on problem areas before they become a financial crisis.

We’d personally like to thank Sarah Landrum of Punched Clocks for contributing this post.

*PayPie currently integrates with QuickBooks Online. Additional integrations are coming soon.

This article is informational only and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional.