How Cash Flow Forecasting Maximizes Business Funding

Cash Flow Forecast Increasing Focus

You’ve probably considered business financing to help fund a new project or fulfill large orders. However, you might not know how important cash flow forecasting is in the approval process.

The fact is: Cash flow forecasting makes a huge difference to lenders. The more stable your business appears in the present and future, the more likely you are to get approved.

Getting a financing comes down to looking like a solid candidate in the eyes of your lending partner — the safer (less risky) your company appears, the more attractive you are as an investment.

Cash flow forecasting, like the kind offered by PayPie, gives prospective lenders a glimpse into what kind of operating capital your company has on hand and will have in the future. This demonstrates your ability to afford loan repayments, as well as the longer-term solvency of your business.

What cash flow forecasting helps you achieve

Before we dive into how cash flow forecasting maximizes business funding, let’s get into the details of how cash flow forecasting works. A cash flow forecast uses your current cash flow numbers to pinpoint strengths and weaknesses. When produced at regular intervals, such as each month, cash flow forecasts help you better predict your company’s future performance.

1. It pulls together metrics from your main financial statements

Using financial information from your income statement, balance sheet and cash flow statement, cash flow forecasting, like one created using PayPie,  helps you get the full picture of your finances. It does so by analyzing these numbers and providing a highly visual, easily understood report containing relevant ratios, charts and graphs.

2. It helps you measure and set benchmarks

If you’ve set benchmarks based on previous cash flow forecasts or through your cash flow budget, each new forecast you create gives you valuable insights into how well your company performed against these benchmarks. Cash flow forecasting can also help you fine-tune your benchmarks or set entirely new ones.

3. It tells you how much financing you can afford

Another pattern or trend that cash flow forecasting helps you visualize is where you stand in terms of financing. It can tell you how well your managing existing repayments. And if you need or plan to borrow additional funds, forecasting shows you how much new financing you can afford.

Read More: Essential Cash Flow Basics 

learning from cash flow forecasting

How cash flow forecasting helps you determine which business financing option you need

Cash flow forecasting doesn’t just help entrepreneurs visualize how money is moving in and out of their businesses. It also helps determine what kind of business funding you need in order to reach your goals.

Small business financing products are not created equal — some, such as a business line of credit, are better suited toward recurring situations in which you might need extra capital. Others, such as a working capital loan, provide companies with a one-time payment to help pay for general expenses across the entire business.

If getting funds quickly is your primary cash flow issue, invoice factoring.  provides you with an advance against the total of an outstanding invoice, giving you a lump sum in a matter of days. (If not faster in some instances.) 

By helping you pick the financing that fits your needs, a good cash flow forecast can even save you money. By assessing where your financing gaps are, you only borrow what you need. This helps you save money in the long term by not paying interest on amounts you don’t need or avoiding penalties from missed payments or misaligned products.

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

How cash flow forecasting affects the application process

Your cash flow forecast will also be of interest to your lending partner. For them, financing is all about risk. The more proof you have that you can afford to repay debts, the less risky your company appears. Good cash flow management signals to lenders that you’re able to assume the costs of repayment. This, in turn, demonstrates that your future financials can withstand this extra financial burden throughout the payback period.

Lenders also look at your 5 C’s of Credit when evaluating your application, and your cash flow forecast can go a long way in making these criteria more appealing. The 5 C’s of Credit are:

  1. Character: Your personal and professional credit history (past and present debts), as well as the personal profiles of you and your co-signers (your professional history, accomplishments, or other testaments as to why you’re creditworthy).
  2. Capacity: Your company’s ability to pay back the amount of the loan in question. Lenders want to see if your cash flow can support the additional debt and expenses associated with your financing.
  3. Capital: The amount of money that business owners have invested in their own company. Lenders like to see that entrepreneurs have put some skin in the game themselves before they provide you with cash.
  4. Collateral: What businesses can offer their lender in the event that they’re no longer able to pay back their loan. Collateral can consist of liquid assets or business equipment.
  5. Conditions: How borrowers intend to use their loans. For example, whether they’re using the loan to pay for raw materials or a new marketing campaign.

Cash flow forecasts impact several of your company’s 5 C’s — particularly your capacity to pay back your loan on time and without complications. They also reflect the collateral you can provide and the conditions for which you’re seeking the loan in the first place.

Read our full article on the 5 C’s of Business Credit

What else lenders look for in a cash flow forecast

Cash flow forecasts are akin to going under the hood of your company’s financial vehicle. They let lenders take a look at to review your one-off and recurring expenses, your income sources, your expectations for future financial operations, and whether or not your forecasting model is correct. In particular, lenders look at your cash flow forecast for:

  1. Future sales: Banks want to know about recurring revenue sources, as this demonstrates that your company is sustainable over time.
  2. Invoice payment timing: The timing of your accounts receivables and payables matters to lenders too, as it influences your company’s cash flow on an ongoing basis.
  3. Business costs: Whether or not your company has overhead issues also goes a long way in the loan decision-making process. Banks want to see how you’re spending your money, and whether or not your expenses are sustainable.
  4. Operational health: Cash flow forecasts demonstrate your company’s operating health. Banks want to know if you’re operating with a baseline level of success before making an investment. After all, few people want to lend to folks who can’t pay them back.
  5. Historical performance: As the old saying goes, history repeats itself. Your previous financial performance provides a benchmark for future activity. It also reflects whether or not you experience cyclical downturns or periods of financial instability.

There are other means by which lenders can get details on the aforementioned points. However, cash flow forecasts collate them into one document, which makes it easier to assess whether or not your business is as creditworthy as it appears in your application.

How to create a cash flow forecast

The best way to prepare an accurate cash flow forecast to maximize business funding is through PayPie’s cash flow forecasting tool. Our proprietary risk score, built into your forecast, also gives you insight into what your company’s credit looks like in near-real-time.

cash flow management main dashboard

Just create your PayPie account and connect your business. QuickBooks Online users can start right now. And the entire process doesn’t cost a single dime.

PayPie integrates with QuickBooks Online. Other collaborations are in the works. 

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

Images via Pexels and the PayPie Cash Flow Dashboard. 

12 Thought-Provoking Cash Flow Quotes and Expressions

cash flow quotes success

Few financial vital signs are as important as cash flow. Some of the best minds in business (and, surprisingly, hip-hop) have coined cash flow quotes musing about the keeping an eye on money coming in and going out of a business.

The first modern mention of cash flow dates back to 1863 in the United States and was the first accounting of cash receipts and disbursements of its kind. Since then, business magnates and people from all walks of life have opined on the value of cash flow. The following is a list of some of the best cash flow quotes and sayings.

“Revenue is vanity, profit is sanity, but cash is king.”
Unknown 

The origin of the mythical “cash is king” is unknown. The common consensus is that former Volvo CEO Pehr G. Gyllenhammar first used the expression in 1988 while discussing the global stock market crash of 1987. During that time, companies with ample cash reserves weathered the markets better than those who had poor cash management.

The expanded maxim’s message is clear and concise. Your company’s revenue figures are great to flaunt, but they don’t ultimately mean much if your cash flow is out of whack. Profit offers peace of mind, surely, but it doesn’t indicate that your business financials are sound. Only stable, reliable cash flow can truly demonstrate success.

Read More: The Difference Between Profit and Cash Flow

“A picture’s worth a thousand words.”
—Unknown

This is also a quote with a disputed origin. But, what’s undebatable is how visualizing your cash flow with a tool, like our cash flow forecasting and risk assessment, helps you see your cash flow in an entirely new light. Humankind was not created to manage by spreadsheet alone. In fact, most studies prove that people really are visual learners.

“Money is a terrible master but an excellent servant.”
—P.T. Barnum, founder, Barnum & Bailey Circus, showman and businessman

P.T. Barnum was never afraid to approach the elephant in the room—both literally and metaphorically. Barnum is famous for the circus which bears his name, but he was also a newspaper publisher and world-class huckster. His exploits made him a wealthy man, with an estimated net worth of $8.5 million. Barnum also authored several books, including The Art of Money-Getting, which remains one of the most on-the-nose book titles ever used.

But for all of Barnum’s escapades, the man knew how to bring in cash. He also knew that cash is best used as a tool to fuel growth and new business, rather than the end goal alone. Cash flow operates in much the same way for today’s entrepreneurs. You should rely on cash flow to serve your needs, but never let it be the sole ringmaster controlling your fortune.

cash flow quotes box

Read More: The Facts on Cash Flow Forecasting

“Never take your eyes off the cash flow because it’s the lifeblood of business.”
—Sir Richard Branson, business magnate, investor, author and philanthropist

Richard Branson knew he wanted to be an entrepreneur from an early age. He began his first business, a mail-order record business, at the age of 17. He then went on to open the Virgin Records chain in 1972, an airline in 1984, a train system in 1993, and a space tourism business in 2004. If anyone knows how to juggle business development with cash flow analysis, it’s likely the man who started off with a magazine and may one day end up in outer space.

Branson’s aspirations likely would not have taken off were it not for a steadfast control of his companies’ cash flow. New business may come and go, but cash flow dictates whether or not you’ll be in operation long enough to see them come to fruition. Companies cannot thrive, let alone exist, without positive cash flow.

Like Numbers Too? The End-All-Be-All-List of Cash Flow Statistics 

“Cash rules everything around me. C.R.E.A.M. get the money— dollar dollar bill, yo.”
—Wu-Tang Clan

 The Wu-Tang Clan are perhaps known more for their genre-defining art than their financial acumen. But C.R.E.A.M. remains as salient today as it did when the song (and acronym) first dropped on Enter the Wu-Tang (36 Chambers) in 1994. To paraphrase band leader RZA, without positive cash flow, “You [can’t] punch your way out of a wet paper bag with a pair of scissors in your hand.”

Much like the adage that says cash is king, cash should rule everything around your business. Revenue’s important, and so is a solid business model. But everything comes back to cash flow. Protect your neck by keeping an eye on your cash coming in and your money going out.

“If I had to run a company on three measures, those measures would be customer satisfaction, employee satisfaction, and cash flow.”
—Jack Welch, Former General Electric CEO, author and chemical engineer

Jack Welch is one of the wisest business leaders of his generation. He reorganized and rebuilt General Electric (GE) in what became one of the strongest corporate turnarounds in history. Transforming an aging manufacturing giant into a business behemoth, Welch’s management style pushed employees to perform at their best. His vision for GE also strove to increase the company’s market share.

But cash flow sits alongside these two tenets of Welch’s business philosophy, signifying just how important it is to keep your company’s capital in good shape. Without happy customers and employees, you can’t attract and retain people to fuel your business. And without cash, you won’t have a business to fuel in the first place.

“We were always focused on our profit and loss statement. But cash flow was not a regularly discussed topic. It was as if we were driving along, watching only the speedometer, when in fact we were running out of gas.”
—Michael Dell, founder and CEO, Dell Technologies

In 1984, Michael Dell started his technology company by building and selling personal computers from his dorm room. He went on to win business by undercutting his competition, mostly because he didn’t have the overhead costs that come with retail operations. Dell started his business by focusing on profit and loss statements, avoiding consumer-facing retail due to low profit margins.

What Dell had to learn about business was that cash flow is the real barometer of a company’s overall health and viability—not profit. Low profit-margin companies can thrive so long as their overhead remains minimal and their sales volume high. Focusing on profits and losses can come at the expense of cash flow management, which means you might find yourself running on empty sooner than you think.

Learn More: 5 Stories Your Financial Statements Tell

“Money often costs too much.”
—Ralph Waldo Emerson, essayist, lecturer and philosopher

 Were Emerson alive today, he’d likely have one of the best Twitter accounts out there. The transcendentalist thinker coined some of the pithiest phrases of his time and wrote extensive treatises on the human condition just as compellingly.

Emerson is also quoted as stating, “Money is of no value; it cannot spend itself. All depends on the skill of the spender.” Both of these insights are applicable to the importance of cash flow. It’s better to monitor your cash flow and borrow wisely. This allows you to use your company’s capital in a skilled, deliberate manner.

“Entrepreneurs believe that profit is what matters most in a new enterprise. But profit is secondary. Cash flow matters most.”
—Peter Drucker, management consultant, educator and author 

New entrepreneurs may see profit as a marker of a successful business, but cash flow is what keeps the lights on. This is a more accurate marker of your company’s success in its early stages than the amount of money you bring in, as profit only tells one part of the story.

It’s difficult to keep cash flow in mind when you’re starting a new venture. The demand to generate revenue can overshadow the necessities of money management. But the latter is more important than the former, lest your company spend more than it takes in.

“The more a business owner knows about their cash flow, they more empowered they become.”
—Nick Chandi, PayPie CEO

 Our very own CEO, Nick Chandi, nicely sums up the importance of knowing your cash flow inside and out. Small and medium-sized enterprises (SMEs) have to pay close attention to where, when, why and how cash moves through their business. Cash flow concerns can get eclipsed by the other daily issues that require an entrepreneur’s attention, however.

In order to look ahead, you have to see where you’ve been. Cash flow forecasting lets you look at the factors affecting your cash flow, like accounts receivable and payable, so that you can see patterns and anticipate or prevent gaps. A risk score, contained within the forecast, also provides a key indicator of financial health and the ability to procure businesses financing when needed.

More Tips: How to Read a Cash Flow Statement

“There is really only one way to address cash flow crunches, and it’s planning so you can prevent them in advance.”
—Elaine Pofeldt, writer, editor, and author of The Million-Dollar, One Person Business

Pofeldt hits upon a crucial component of financial success: Preparation. Your company may be raking in revenue today, but face a financial downturn tomorrow. The best way to safeguard your business against the ebbs and flows of commerce is by planning ahead and managing cash flow before crises arise.

The first step toward preparation is management. The more you manage cash flow today, the better you can understand your needs in the future. It’s better to invest time and effort now than to pay for inattentiveness in dollars and cents down the line.

“The fact is that one of the earliest lessons I learned in business was that balance sheets and income statements are fiction, cash flow is reality.”
Chris Chocola, American businessman and former politician

There’s any number of metrics out there that business owners can use to benchmark the success of their venture. Some are better than others. Income statements and balance sheets often tell an incomplete picture at best, and an inaccurate one at worst. It’s easier to spin these figures in a positive manner, whereas cash flow statements provide an unvarnished glimpse into your company’s overall health.

Cash flow, therefore, is the best way to track your company’s performance and viability. If you are able to keep a close watch on cash flow, you can then project whether your income is sustainable for growth and if your balance sheets accurately account for your assets and liabilities.

No matter which of these cash flow quotes and sayings most resonates with you, the most important takeaway is the virtue of maintaining a clear and accurate picture of your company’s financial decisions.

PayPie helps you keep track of your business’s current cash flow and future projections will deep insights. And with that information, you can make more informed decisions about your company’s future.

Signing up is simple. PayPie integrates directly with QuickBooks Online and you can connect your account with just one click. (Other integrations are in development.) Remember, “Actions speak louder than words.”

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

Images via Pexels.

Business Credit Cards: How to Use Them

Best Business Credit Cards Canada

A business credit card is one of many ways to pay for goods and services. They offer plenty of advantages over cash or debit payments — including the ability to make large purchases without having to pay for them all at once. There’s the convenience factor of letting multiple employees make purchases with the same account. And there’s also the rewards and perks programs.

However, a small business credit card can also help you manage your company’s cash flow — especially if you use it as your company’s primary purchasing tool. 

When used correctly, credit cards can streamline your company’s spending practices. But, you’ll also need to track your cash flow with PayPie to make sure your credit cards really work for your business.

How to use a business credit card strategically

When used effectively, business credit cards can provide interest-free financing, travel rewards or cash back, other perks and discounts on commonly purchased goods. They’re an easy way to give employees purchasing power and they come with reporting and fraud controls.

Using your business credit card for interest-free financing

Getting a loan to pay for a much-needed purchase can be a lengthy task for most entrepreneurs. And that’s not even delving into interest rates, which can leave a bitter taste in your mouth when you need to access financing. Spending on the business credit card you open, there’s an opportunity to use promotional interest periods to finance large purchases — all without having to pay a dime in interest.

If you and your business have an exemplary history with credit, you may qualify for a 0% introductory APR business credit cards.

As long as your credit limit allows for it, take advantage of your introductory interest rate to make large purchases and pay them back over time without interest. You can also time your purchases to correspond with other perks, such as cash back or points, if your credit card includes them.

Note: Not every small business is eligible for 0% introductory APR cards and they’re not available in every country. (Sorry, Canada.) Thankfully, there are plenty of alternatives out there — particularly in the form of non-traditional short-term financing

Earning travel or cash back with your business credit card

One of the most common reason entrepreneurs open business credit cards is the ability to earn travel rewards or cash back.

When looking at these kinds of rewards programs, know exactly what benefits suit your needs. Determine how you’d maximize your points or cash back. Then, pick a card that will help you get the most out of your purchases.

Keep in mind that reward programs vary substantially from one credit card to the next. Some cards only work with specific airlines. Others offer additional miles for purchases from specific categories or retailers.

Do the math to make sure you know which reward program will benefit you the most. Literally, take a look at your current spending and see how the cash back or points would stack up.

The Best Business Credit Cards in the United States | The Best Business Credit Cards in Canada

Using your business credit card for perks and discounts

While travel and cash back are pretty popular, there are other kinds of reward programs. These include reward points that can be redeemed for any range of goods and services and discounts on common business purchases.

If these kinds of perks are for you, consider opening a credit card account at a store you frequent for your business. For instance, if you’re a landscaping contractor, a reward card from a home improvement or garden store makes sense. Many big-box retailers and online stores offer credit cards that reward you handsomely for making purchases with them through your store card.

Take note, though, that these cards do not offer perks for shopping at other stores. And, in some cases, offer lower cash back amounts than you’d find with a conventional small business credit card.

If you’re interested in reward points, also be sure to know where you can use them.

Having more than one business credit card

Having several business credit cards can be a mixed blessing. Your credit won’t get dinged for having several credit accounts (as long as you pay on time). But you could get penalized if you apply for more than one card at once.

That, and having several credit accounts defeats the purpose of managing cash flow through your business credit card, as you won’t have only one card through which purchases are made.

Using a business credit card for employee purchases

It’s impossible for a small business owner to be everywhere at once. This becomes painfully obvious when you’re tied up with other work, but are the only person with the authority to make a last-minute purchase. Business credit cards are a solution that empowers employees while maintaining a comprehensive view of where the company’s money is going.

Most business credit cards provide account holders with additional employee cards free of charge and all transactions are recorded on the main account contact so that you can accurately track expenses. In a worst-case scenario, account holders can also close accounts or deny purchases in order to prevent fraud and control costs.

Looking at business credit cards and cash flow

How To Use Business Credit Cards to Track Spending

Making your business credit card the default way to pay for purchases lets you use your credit card statement/expense tracking software to get a snapshot of your company’s spending over a set period of time.

When you use your business credit card to monitor spending, be diligent.

  • Your credit account has to be a direct substitute for a debit card, cash payments, or checks.
  • If you’re only making some of your purchases on your card, you’re not going to get a comprehensive picture of your spending activity.
  • Once you’ve consolidated your purchasing methods to your credit card account, make sure you’re using the card like you would cash.
  • Don’t spend more than you can afford to pay off during each billing statement, lest you incur hefty interest fees that you could have otherwise avoided.

Remember that business credit cards can impact personal credit

Your business credit card likely included a personal liability guarantee, which means that you’re personally responsible for paying any business credit card debt that the company itself cannot afford. For example, if your company goes bankrupt, you’re still personally liable to pay for any and all outstanding credit card fees. In this regard, there’s little that separates your professional debts from your personal obligations.

Read More: How Business Credit Cards Affect Personal Credit

Track, track, track

Add your credit card account details into your accounting software. Most credit card companies integrate with tools, like QuickBooks Desktop or QuickBooks Online, so that your statement information can be added to your overall financial data and reports.

In turn, when you connect your accounting software to a cash flow forecasting tool, your credit card information will be included in your expense analysis.

Beyond the business credit card

For all the perks of using a business credit card to track and conduct day-to-day spending, this method is only one of many strategies out there for keeping your company’s financials in order.

As credit cards are only one part of the spending picture, every entrepreneur should conduct regular cash flow forecasts in order to track all a business’ inflows and outflows. The sooner you track your cash flow, the easier it is to spot seasonal trends or potential emergencies before they occur.

While keeping tabs on your cash flow, you can also monitor your company’s credit risk. Knowing how creditworthy your company is before you begin applying for credit cards can also save you a ton of paperwork later on.

QuickBooks Online users can get started today. Simply sign up, connect your business and run your free report — which includes a proprietary risk score.

PayPie currently integrates only with QuickBooks Online. Additional integrations are in development. 

This information does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional.

Images via Pexels. 

The 5 C’s of Credit Explained

5cs of credit chess pieces

Determining your company’s creditworthiness can feel like looking into a crystal ball. Although you might know some of the basics, it’s important to understand the 5 C’s of credit and how they make all the difference when you apply for business financing. 

The 5 C’s determine if your company has solid financials and is worthy of financing. They consist of your company’s character (credit history), capacity, capital, collateral, and the conditions of any loan offered. These key indicators help lenders get a rough sketch of whether your business is creditworthy — or if there is a risk that you won’t be able to repay your debts.

Before we go into explaining each component, we want to let you know that there are tools available to help you monitor cash flow and your overall risk profile. PayPie’s cash flow forecasting and risk assessment help you perform your own evaluation of your 5 C’s.

Breaking down the 5 C’s of credit

Lenders review mountains of credit applications every year, and statistics point toward this mountain growing even higher in the coming years. As a result, there’s just not enough time to go beyond the 5 C’s to evaluate your company’s credit risk.

The components represent the major determinants of your credit risk. Each element details how you manage finances, pay back lenders, and what would-be lenders can offer you. Here’s what each of the 5 C’s of credit means and how they impact your creditworthiness:

1. Character (credit history)

When lenders look into your company’s character, they’re determining your trustworthiness as a borrower. These factors consist of business experience, financial acumen, educational background, and a good track record of paying back any previous or existing debts. This is where your personal and professional accomplishments can make an impact. The more you’re able to convince lenders that you’ve got what it takes to build (and maintain) a successful business, the better your character appears.

Don’t be shy about your credentials if you want to ace your company’s character assessment. Mention any successful businesses you’ve started in the past, educational achievements, and prior instances where you’ve paid off loans on time. Include high-quality references from prior business associates and detail the professional experiences that you, your business partners, and employees have (especially if they’re brag-worthy).

2. Capacity

Capacity evaluates your company’s cash flow, and whether or not it has the capacity to repay the loan. Lenders don’t want to finance a business that may not have the income or resources to make repayment a sure thing. Lenders will look at the cash flow statements your company submitted as part of your loan application. They may also look at how long a company has been in business as a determinant of its financial health.

Read More: How Business Financing Options Affect Credit 

5cs of credit strategy coming together

3. Capital

Lenders like it when business owners invest some of their own money to get their company up and running. It signals that the founders are committed to their venture’s success. If you have not made a personal investment in your company (if you launched with external capital or startup funding, for example), you may not represent the kind of capital commitment most lenders would want to see.

4. Collateral

In addition to capital, lenders also want to know what assets you can use to secure your loan. Collateral can consist of liquid assets (your company’s cash), equipment, real estate, unpaid invoices, or other property. Secured business loans require collateral in exchange for approval, which allows your lender to seize your assets in the event that you can’t pay what you owe.

Not every loan requires collateral, however. Unsecured business loans give borrowers access to cash without offering their company’s assets in return. These loans are often easier to obtain than secured business loans, but require personal guarantees of repayment from applicants (meaning that you’re going to pay personally if your business can’t).

5. Conditions

Loan approval doesn’t only boil down to company success, personal accomplishments, character, or available collateral. It also depends on the purpose of your loan, as well as the overall stability of your company. These are also known as a loan’s conditions.

For example, the conditions of your loan appear more stable if you’re using it to buy the materials need to fulfill purchase orders. If you’re looking for general working capital to cover operating costs; however, your conditions may be less desirable. The logic behind these decisions has to do with whether or not your company’s underlying financials are strong.

Financing new business opportunities for a successful company is much different than financing operational costs for a business that might not be turning enough of a profit on its own. The former is less risky than the latter, which is more appealing for lenders.

Learn More: How Business Credit Cards Affect Personal Credit 

The bonus C: Communication

Communication is also a determining factor of whether or not you’re a good business partner. Conveying your company’s challenges and opportunities during the loan application process shows transparency and helps build trust between you and your lender.

The 5 C’s of credit and cash flow

Cash flow is the essential component that makes your company’s 5 C’s of credit shine. Capacity is all about measuring whether or not your company has enough liquidity to support a loan — making cash flow an essential part of the equation. 

Without positive cash flow, you’re going to have a tough time getting credit. The basis of good credit begins with solid financials — here’s why it pays to keep on top of your cash flow before you seek financing.

Managing cash flow helps you:

1. Demonstrate capital

As we’ve discussed earlier, capital is a major determinant for lenders when they review loan applications. You will need to provide as much information as possible about how much money your company has available, along with any other liquid assets. Cash flow management helps you keep track of your capital, which makes it easier for you to provide insights to your lender.

One thing to keep in mind is that there are lending options that don’t look at capital the same way that traditional term-loans or revolving lines of credit do. Asset-based lending, like invoice factoring and financing, let you use your outstanding invoices as collateral to access funds quickly and easily.

2. Keep debts organized

Lenders want to know how well you’ve handled debt in the past, as well as your capacity to repay new or existing loans. You can use cash flow management to track repayments, forecast future loan-related expenses, and monitor your own capacity to take on additional debt. You’ll be doing yourself a favor by staying organized. Your loan applications will also be all the more attractive as a result.

3. Create better revenue projections

Conditions are a crucial decider of creditworthiness. As such, your company’s revenue projections play a role in evaluating the risks and opportunities you might encounter in the future. The best way to anticipate future revenue is by monitoring your cash flow over time.

PayPie’s cash flow forecasting tool helps you better understand where your money is coming from, where it’s going, and what your company’s financials might look like down the road.

4. Answer questions during the application process

Loan application reviews are extensive, and borrowers need to be ready to answer questions about their business throughout the process. The best thing you can do is be prepared. Monitoring your cash flow can help answer common questions about your company’s current revenue, revenue projections, and operating finances. You’ll have answers if you monitor your cash flow on an ongoing basis, rather than piecing together financial information as questions arise.

The 5 C’s of credit may determine your company’s creditworthiness. You can set yourself up for success by keeping on top of your company’s cash flow.

The best way to begin is PayPie’s cash flow forecasting tool, which integrates seamlessly into your QuickBooks Online account (integrations with other bookkeeping platforms are coming soon).

Sign up, connect your business and run your free report! 

Best of all, the tool includes a proprietary risk score, which gives you further insights into your company’s attractiveness to lenders.

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. 

How Business Credit Cards Affect Personal Credit

Business credit cards and personal credit

Keeping personal and business finances separate is a cardinal rule of owning a business. But there are instances where it’s impossible to keep the two apart (by no fault of your own). One example? Business credit cards. If you’re applying for a business credit card, chances are you’ll have to share your personal credit history to even apply.

There’s a strong link between your personal credit and your business credit — especially if you’ve just started your business. Because you don’t have an established credit history, you may have to sign a personal guarantee that makes you personally responsible for your business debts.

Business credit cards are a great resource to keep a business humming — but they’re not without risks and should be used wisely. This is why PayPie advocates monitoring cash flow to get a 360° view of your company’s incomes and expenses.

Business credit cards and personal credit

When card issuers approve credit card applications, their primary decision factor is risk. Before extending credit, they want to know if, historically, a borrower has paid back their obligations on time.

The tricky issue for new businesses is their lack of credit history. It’s hard to determine how good you are at paying off debt if your company doesn’t have a borrowing history in the first place. This forces creditors to look elsewhere to get a sense of their applicants’ creditworthiness. The first place they look? Your personal credit.

If an applicant has a personal history of paying on time, it’s likely that they’ll pay their business credit card bills on time too. In this respect, business credit cards function as an extension of your own personal credit. Until your business takes on debts of its own and builds its business credit history, your personal track record serves as a substitute.

business owner using a credit card

Business credit cards and personal liability

The connection between your personal credit and your business credit card doesn’t end at the application process. You can expect to sign a personal guarantee when you open your card as well. The personal guarantee is a promise to your creditor that you will pay for debts if your business can’t.

The idea of taking on your business’ debt can sound intimidating. After all, most entrepreneurs set up business entities like limited liability corporations (LLCs) or S-corps to separate their business liability from their personal obligations. But, business entities only offer so much protection and little of it extends to paying off your company’s credit card balance.

The CARD Act of 2009 protects personal credit card holders from several practices, such as arbitrary interest rate increases, double-cycle billing, and unfair payment allocations. But, the act doesn’t cover business credit cards. Many major business credit card providers offer their customers the same or similar protection. When you apply for a card, just make sure you know if your provider offers any protection from unfriendly practices.

How Business Financing Options Affect Credit (And Vice Versa)

Circumventing a personal guarantee (Why it’s hard)

Not every credit card requires a personal liability guarantee. There’s a chance you won’t have to sign one if your personal credit is stellar, you have a preexisting relationship with your creditor, or your business already has a solid credit history. Alternatively, you and your business partners can apply for a limited liability business credit card, but unless you’re making millions in revenue, you probably won’t get approval.

Regardless, unless you specifically go out of your way to avoid a personal guarantee on your business credit card — and have an outstanding credit history with significant revenue — you’re likely going to need to sign one.

The Best Business Credit Cards and How to Pick the Right One 

How business debt affects personal debt

Not only are you personally responsible for business credit card debts if your company can’t take care of them — your personal credit history will also be on the line if creditors don’t get paid.

Of course, bankruptcy is a last resort. If your company completes the Chapter 11 process, you can still potentially continue to run your business and settle your debts entirely through the financial veil of your company. But, if your company doesn’t qualify, can’t meet obligations, or otherwise folds before or after bankruptcy — you’re personally liable for your company’s unpaid credit card bills.

Should your business’ debt issue get to a point where you can’t pay back business purchases yourself, you may even need to file Chapter 7 bankruptcy as an individual, too.

Protecting your business and personal credit

The idea of business credit card providers having access to your personal finances is a frightening one. But, there are ways to mitigate the prospect of this happening.

Establish a strong credit history for your business if you want to create distance between your personal and business credit. The longer your track record of paying on time, the more trustworthy you’ll appear to creditors. The more trustworthy your company is, the better your interest rate will be. Creditors will also be more likely to work with you when payment issues arise, giving you more flexibility to pay back debts.

Aside from generating revenue, the other way to create space between your business and personal credit is time. The longer you’re in business, the more likely banks are to view your company’s financials as separate from your own personal history. There may not be much you can do to influence the passing of time. However, patience perseveres here.

A business credit card is only one component of your company’s suite of credit and payment tools. Keeping track of them all, while doing all you can to improve your business’ credit, can be challenging.

Our cash flow forecasting tool helps you get the big picture of how all your incomes and expenses come together — including how it influences your risk profile.

QuickBooks Online users can get started today. All you have to do is sign up.

cash flow management main dashboard

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

This information does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional.

Images via Pexels. 

Invoice Factoring: A Beginner’s Guide

invoice factoring beginners guide

The best feeling in the world as a business owner is getting paid. The worst? Waiting to get paid. Whether it’s due to trade credit or delinquent customers, waiting on money is awful. That’s where invoice factoring from PayPie can help as a fast, effective way to free up cash tied up in unpaid invoices.

If you haven’t heard of invoice factoring before, it’s a well-established trillion dollar industry. (For history buffs: The earliest form of invoice factoring first appeared in the Code of Hammurabi from 1754 BCE.) For newbies and entrepreneurs who simply want to be informed — here’s what you need to know about how it works:

How invoice factoring works

Invoice factoring is a fairly simple concept: If a company has one or more unpaid invoices that due from clients, but hasn’t yet been paid to them. Invoice factoring lets businesses sell their invoices to lenders (factors) for the sum of their outstanding balances. You essentially borrow against your outstanding invoices in order to get your money faster — since the factor provides the cash instead of the customer. This creates more financial flexibility, all without a lengthy term-loan application process.

The factor holds onto the borrower’s invoices in exchange for a percentage of the total value of the invoices. The factor is then responsible for the collections process, typically by working directly with the clients who are paying for services. Once the factor is paid, the business receives the remainder of the balance — minus interest and fees.

The benefits:

  • By passing along invoices to a factor, businesses free themselves from lumpy cash flow due to piecemeal payments.
  • This further unburdens the business from being reliant accounts receivable in order to have working capital and cash flow.
  • The factor provides the money up front and handles the back-end work of collecting payment. 

Learn More: Six Reasons Businesses Use Funding 

Five ways businesses can use invoice factoring

Here are some examples of what businesses can do with the money they receive through invoice factoring:

1. Bridging cash flow gaps 

The most vexing issue with unpaid invoices is the uncertainty they create for your company’s cash flow. You know that you have money coming in, but you’re not sure when you’ll actually see it in your account. Invoice factoring helps you take the guesswork out of when you’ll get paid — making it much easier to keep your company’s cash flow steady.

By borrowing against the value of your invoices, you know exactly when you’ll have money in your account. Invoice factoring minimizes fluctuations in your company’s day-to-day finances, all while making it less of an imperative to chase individual invoices in order to keep your business running smoothly.

2. Accessing fast, short-term funding

Keeping your cash flow steady is great. But, sometimes, you need a little extra help with paying for bigger expenses as well, such as payroll or emergency repairs. Instead of panicking when you’re short on operational cash but big on unpaid invoices, you can use invoice factoring to help take care of the little (and big) things that keep your company humming.

Invoice factoring is usually a speedier process than obtaining a business loan or business line of credit. Those loans typically require collateral, extensive applications, and a lag between approval and the disbursement of funds. You can’t always wait that long if you’re short on cash to pay staff, replace broken machinery, or make an office repair.

growth opportunity

3. Using invoice factoring to access working capital

Your company’s cash flow and operational budgeting might be perfectly fine from month to month.  Better still, your clients might be super reliable about paying their invoices on time. But even if any of those factors are true for your business, there may still be moments when you can benefit from having a lump sum that’s delivered to you more quickly than your invoice terms allow.

In these cases, invoice factoring helps you move up the payment timeline. There are also no restrictions on how you use the money — since, in essence, it’s your cash in the first place. You’re free to use invoice factoring to increase the amount of liquid funds on your balance sheet and apply them how you see fit.

More Tips: 7 Ways to Boost Cash Flow 

4. Investing in growth

Another great time to pursue invoice factoring is when you’re ready to tackle a new project, initiative, or large order from an existing or new client. It’s not always easy to invest in the raw material, machinery, or inventory you need when expanding your business. But through invoice factoring, you can convert your existing accounts receivable funds into money that can be used for all of the above.

Even if you would not normally be in the market for invoice factoring, you can always call upon this resource when the unexpected (but exciting) prospect of future business or new initiatives comes around.

5. Building and preserving credit

Invoice factoring provides small business owners with an opportunity to get financing without impacting their credit rating, too. The money you get from invoice factoring a loan, since your invoices are the basis for the exchange between you and your factor. And, if you want to build your business credit, you’re free to use the money to pay off business debts. In these ways, invoice factoring helps you preserve or improve your credit.

What’s a Business Credit Report and Why Should You Care?

Three questions to ask when considering invoice factoring

If you’re considering invoice factoring, there are a few factors to consider. You’ll want to make sure you’re partnering with the right company, and on the right terms for your business. Here are a few of the big questions to consider before entering into an invoice factoring agreement:

1. What are your odds of loan approval?

It is typically easier to get approved for invoice factoring than for other kinds of loan products. With that in mind, you’ll want to consider whether or not you’re likely to get your business approved for other kinds of loans, or if your best bet is to pursue invoice factoring from the get-go.

If you’re considering working with a company, ask them which factors increase or decrease your risk profile, including years in business, previous credit history, the size of the invoices and the quality of your customers and their payment histories.

2. How will invoice factoring impact my client relationships?

Although invoice factoring is common, many factors require businesses to notify their clients about their partnership. Clients will pay invoices to the factor, rather than the business, which can sometimes require explanation and information. Not every small business owner wants to leave this component of their client relationship to a third-party, making a dialogue about invoice factoring beneficial.

3. Which invoice factoring company is right for my business?

Invoice factoring has been around for quite a while. In fact, it’s old enough to have seen a variety of industry-specific factoring companies flourish. Small businesses owners may not be familiar with invoice factoring companies, however, which means that it’s important to find one that has experience working within your field.

If you’re used to waiting 30, 60, or 90 days to get paid, but often need the money in less time than your terms allow — invoice factoring may help you create a steady cash flow, a consistent pool of operating capital, or even an additional source of funds to help take on the next big chapter in a business’ growth.

In addition to invoice factoring (coming soon), PayPie also offers insightful cash flow forecasting cash flow forecasting that includes drill-down screens for accounts receivable and credit risk insights (see below) that show small business owners how potential lenders might assess their company.

PayPie Cash Flow Forecast Example

All you need to do is sign up for a PayPie account and connect it to your QuickBooks Online account, and you’re good to go.

PayPie only supports QBO at the moment, but integrations with other accounting applications 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.