Even brilliant entrepreneurs struggle with cashflow, particularly when they are just getting started. As a leading global cashflow solutions provider, we see many companies struggling to smooth out their cashflows and have a reliable level of working capital. Here are the five most common problems they help small businesses solve:

1. Rapid Growth. Companies that are growing quickly incur the cost of increased overhead—materials, equipment, staff, expanded facilities, etc.—before they reap the rewards of their sales. They deplete their cash supply to fulfill orders then wait to receive payment while their bills piles up. Without a cashflow injection, these companies may have to turn down orders as they wait to get paid.

2. Slow paying customers. Too often we see small businesses stretched thin by slow paying customers. Companies in this situation have too much working capital tied up in their invoices. Sometimes this happens because they have agreed to longer-than-average terms to work with a major customer. Other times, it is because an industry has extended production times and a long collections cycle. Most often, though, the customers simply won’t—or can’t—pay on time and not all small businesses have the manpower to thoroughly follow up on late invoices. At Scottish Pacific, we follow up and collect our client’s invoices by phone and email which makes the A/R turn faster.

3. Lending restrictions. Although this has always been an issue for small businesses, it was exacerbated by the GFC. Banks have tightened lending criteria affecting many SMEs and now continue to make it more difficult to obtain loans or raise credit limits. Banks often look at your personal credit score and require collateral they can easily liquidate, particularly real estate. Some avoid certain industries altogether. For example, service providers, such as temporary staffing companies, have flocked to factoring, also known as debtor finance, not just for the quick turnaround times, but also because banks won’t lend to businesses with limited collateral.

4. Failure to perform customer credit checks and debtor concentration. Some of our clients have come to us with cash flow problems because a major customer went bankrupt leaving them exposed to bad debt. It’s hard to turn down business, but it can save their company. Setting reasonable limits for companies with poor credit history can help avoid defaults and late payments. At Scottish Pacific, we perform credit checks on all of our client’s customers to help them avoid falling into this trap, and would always advise clients to diversify their client base so they are not solely reliant on a single debtor or small number of debtors.

5. Seasonality. Companies that generate most of their income in one part of the year have to carefully and diligently manage expenses or they run out of funds to fulfill the influx of orders once a year. For example, we currently fund companies that make seasonal goods such as holiday items, beachwear, and winter clothes. They turn to factoring so they have the cash in hand to fulfill orders when the seasons change and their business picks up.