The success of a business cannot be guaranteed by profitability alone. In order for a business to be financially healthy, cash flow management must be properly managed. Having high profits is useless if you are unable to manage your receivables or inventory properly.
It is easier to plan a realistic business plan when you have positive cash flow – from investing in fixed assets to expanding your business to scaling your operations. How does cash flow management work? What are the best ways to ensure a healthy cash flow for a sustainable business?
What is Cash Flow Management?
An organization’s net cash flow is monitored, analyzed, and optimized by managing its cash flow. A business’s cash comes from three sources: operations, finance, and investments. Positive cash flow is essential for long-term survival, which means more money coming in than going out.
To help you master the practice of proper cash management, we have provided six tips for a streamlined cash flow.
1. Analyze your cash flow pattern
Table of Contents
The first step to achieving a favorable cash flow situation is to perform a cash flow analysis and forecast. Cash flow is affected by a number of factors, such as inventory, accounts payable, receivables, and capital expenditures. Analyzing past cash flow statements is necessary in order to identify cash flow trends resulting from these activities.
In the event that you are still experiencing a cash crunch despite a high revenue over the past few months, this may indicate poor cash management on your part.
In addition, you can use these insights to prepare a cash flow projection for the next few months. By preparing a cash flow projection, you can plan your expenses in advance.
2. Quickly recover receivables
Your business’s cash flow is significantly impacted by receivables. Your receivables will decrease the longer your customers take to settle their payments, so it’s a good idea to have a credit policy.
If you offer credit, set clear payment terms and penalties. Your company’s cash flow can be further improved by offering cash discounts or requesting advance payments.
3. Ensure that a cash reserve fund is established
Regardless of how diligent you are with your expenses, risk is inherent in every business. It is, however, important to maintain a cash reserve fund so that you can meet unplanned expenses and assist the business during periods of economic hardship.
During uncertain times, you should always keep at least three to six months’ worth of cash on hand.
4. Payments for accounts payable should be delayed
The approach you should take when it comes to receivables should be the opposite when it comes to payables. You can extend your cash flow cycle by increasing your payables. To maintain a healthy cash flow, negotiate liberal terms with the supplier – try to time your payables with your receivables. Take advantage of the available credit period to delay payments as long as possible within the credit terms.
To avoid unnecessary expenses, keep track of your business expenses and prepare a budget.
5. Management of inventory should be improved
It is common for businesses to overlook the cash amount in the form of inventory when planning cash flow optimization. It is possible to block up cash that could have been invested elsewhere by keeping higher inventory levels. In addition, it results in higher stock management costs, further harming your business.
Maintain only an optimal inventory level that can be liquidated quickly to avoid this. Investing in inventory will be more risk-averse if you analyze the expected demand in advance.
6. Consider borrowing
A Loan against security is a smart choice and a better alternative than a business loan if you need a continuous flow of cash to run your business. A loan against security will enable you to meet your working capital needs while streamlining the cash flow of your company during peak seasons. You can easily manage your cash flow with these funds by bridging the payment gap between payables and receivables.
What is a Loan Against Securities?
Banks or NBFCs (non-banking financial companies) issue secured loans using collateral such as securities or deposits. Banks accept only predefined securities as collateral.
No matter how small or large your investments are, you make them for a variety of reasons, including purchasing your dream home, saving for retirement, or even meeting business needs. The goal of investing can be anything, but liquidating all your securities is the last thing you should do.
The following things should be kept in mind when applying for a loan against securities:
Loan Amount & Purpose of Your Loan
The timeliness of an occurrence may make it an emergency. Thus, it is crucial that you define your loan’s purpose. Using this information, you can determine whether you need a loan and how much you need. It’s also important to keep in mind that you won’t receive your full securities’ value as a loan. An average of 60 to 80 percent of the total value has been sanctioned. If your securities are worth 20 lakhs, an NBFC or bank will approve 12 to 16 lakhs in credit/business loans.
Find the best lender for your needs.
Several banks and non-bank financial institutions (NBFIs) offer securities-backed loans. When there are so many tempting loan offers, choosing one can be a challenge. Choosing a lender who offers a shorter repayment period and the desired security amount will benefit you. With Rurash Financials, you can quickly get a loan against security with industry-low interest rates of 8.5% and even a discount on processing fees.
Know the List of Collaterals
Visit a bank’s website and familiarize yourself with their collateral policy before borrowing money. A bank provides loans based on specific securities, as stated above. Prepare yourself in advance by familiarizing yourself with the list.
A loan can be obtained against these collaterals
- A deposit in a bank
- NABARD bonds
- UTI bonds
- Insurance for policyholders
- Units of mutual funds
- Debentures that are not convertible
- Shares held in Demat accounts
Check Your Eligibility and Loan against Securities
To qualify for the loan, you must meet certain criteria. Here are some specific eligibility criteria:
- You must be an Indian resident to qualify
- To qualify, a person must be between the ages of 21 and 65
- You must have a regular income source, whether you are self-employed or employed by a private or public company.
- Banks require specific requirements and security for loans.
Advantages of Availing a Loan Against Securities
High Loan Amount
You can borrow up to Rs 10 crore from a bank or NBFC based on the market value of your securities, which is much higher than a credit card or personal loan.
No Prepayment Charges
As a prepayment fee, you have to pay a percentage of your loan when you take out a personal loan. Repaying the entire loan amount at any time will not incur any additional fees.
Lower Interest Rate
Interest rates on securities loans range from 8.5% to 15%. Credit cards or personal loans, however, have much higher interest rates. We ensure that you get the loan against shares with a return of rate as low as 8.5% from the most trusted lenders in the industry.
When it comes to paying back, it’s as easy as it gets. Upon completion of the loan term, you can pay off the actual loan amount in EMIs (equivalent monthly installments) whenever you like.
Earn from Securities
If you have kept your securities as collateral, you will still be able to benefit from your investments. The interest earned on all the securities will be credited to you, so even though it is collateral, it is still beneficial.
If you have an unexpected financial need, you could borrow against your securities. Diluting your assets is not a good idea. Investing wisely will provide a secure future for you. If you let them grow, they will come to your aid at any time.
The bottom line
It is a challenge for many businesses to maintain a healthy cash flow situation. Negative cash flow can be caused by delayed receivables, blocked inventory, and poor cash planning. Your worries can be eased by affordable business finance.
In order to maintain a healthy cash flow, you can take out a loan against security through Rurash Financials that sources the loans from the most trusted lenders namely Tata Capital,Sharekhan by BNP Paribas, Bajaj Financing, Yes Bank etc to get instant cash against your security. By pledging your securities, you will be able to get the most competitive interest rates.
Rurash Financials Pvt. Ltd. is one of India’s top investment management firms, providing financial solutions to augment the client’s wealth and facilitate building a legacy. For any assistance regarding loan against shares feel free to connect with the relationship manager now. write to: email@example.com