5 Ways to Plug a Short-Term Hole in Your Cash Flow

As a business owner, you may have experienced cash flow problems where your expenses outweighed your incoming revenue. This can stifle business growth by preventing you from fulfilling new customer orders, or it might even cause difficulty in making payroll each month.

Here are five ways to plug short-term gaps in cash flow:

1. Invoice Financing

Cash flow gaps are usually a symptom of a broader problem in your supply chain--namely, not getting paid quickly enough by your customers. If you sell $10,000 worth of product, and you invoice the customer, they usually have 30 to 90 days to pay you. That $10,000 won’t appear in your bank account until they do. To firm up your cash flow in the interim period, consider using an invoice financing company.

These companies will extend capital to you, essentially using your invoices as collateral. In most cases, they will advance you about 80 to 90 percent of the value of the invoice upfront and will give you the remainder (minus fees) when your customer pays the invoice. Your customer may have to pay the invoice financing company directly. The money that's lended to you works like a line of credit, so you can submit invoices for funding on a monthly basis.

Invoice financing isn’t cheap--the APR runs from 28 to 60 percent--but it can help when you’re in a pinch. Most invoice financing companies also offer better rates for repeat customers.

2. Credit Cards

It’s simple: if you’re out of cash and need money to buy inventory or supplies, charge your credit card. You can use a personal credit card, but for the most benefit, get a business credit card and use it only for business expenses.

Business credit cards usually offer higher credit limits than consumer cards and reward points in business-related categories. A lot of cards also offer 0 percent APR for a limited time, so you can save on interest even if you can’t pay back the full balance every month.

A lot of business owners assume that credit cards are a costly form of financing, but they are a cheaper alternative to invoice financing and other types of loans.

Here is a list of recommended business credit cards.

3. Purchase Financing

While you wait for your customers to pay you, it hurts your ability to pay your vendors for essentials such as new equipment and inventory. A purchase financing loan may be just the solution.

Certain lenders such as Behalf will actually pay the vendor for equipment that you need, and you can take up to four months to pay back the lender. This spares you from having to negotiate payment terms with the vendor. It only takes a few minutes to qualify for the financing, and you can purchase up to $50,000 worth of equipment or inventory.

4. Merchant Cash Advance

A merchant cash advance is when you get a lump sum of capital in exchange for giving up a fixed portion of your daily credit card sales. Normally, I wouldn’t recommend merchant cash advances because they are really expensive, with APRs approaching 100 percent in some cases.

However, you may want to try a merchant cash advance if you have exhausted all other options for fixing your cash flow problem. Some businesses like the flexibility offered by a merchant cash advance. Since you pay back the advance with a small fixed percentage of your daily sales, you pay more on good days and less on slow days.

Another case where a merchant cash advance makes sense is if you use Square or PayPal to receive payments. These payment companies extend small cash advances to merchants that use their platforms, and their rates are much more affordable than traditional merchant cash advances.

5. Short-Term Working Capital Loans

If cash flow gaps are a regular problem for your business instead of an occasional one, look into getting a short-term working capital loan. You can apply online for a short-term loan and receive up to $250,000 in capital in as little as one business day. These loans have terms anywhere from one month to two years, but there are cheaper options (the options mentioned above) if you only need to borrow money for a few weeks or a couple of months.

The APR for short-term loans is around 40 to 80 percent, so they're pretty expensive, but you can get a lot of capital quickly to cover gaps in cash flow.

Here is a comparison of leading short-term lenders On Deck and Kabbage.