How to Steady Cash Flow with Business Lines of Credit
How’s your company’s cash flow? If your answer is that it’s usually pretty good but you’ve got a few really wild times spaced around the calendar, you’re not alone. It doesn’t matter if you are set up for cash and carry supply, invoicing, or retail sales, every company winds up with periods where the incoming money doesn’t match the outgoing expenses, and it can be difficult to lay up reserves that you can burn during these times without creating additional risks. Eventually, most companies do have a reserve with a limited burn, but before relying on it they use a constellation of financial tools to extend cash flow. That’s where your lines of credit come in.
Front Line Cash Management Tools
Business credit lines are usually the first resort for cash management, and there are a lot of reasons why.
- They are reusable
- Credit lines can be self-administered
- Grace periods allow for limited credit access without interest payments
- Small expenses can be streamlined into large outgoing payments via credit
All of these tools help organize and manage your cash flow, but the ones that make credit lines good for daily management are the grace periods and the reuse factor.
Stop Applying for Credit Quarterly
Lines of credit are built to allow you to draw on them as needed, whenever a balance is available. That means you don’t need to apply for a new one unless you’re adding another line or expanding an existing one. Instead, you’re just set up for use. There are extended options for financing if you maximize the credit lines you have, but most of the time the ability to reuse credit allows companies to manage a business cycle without regular cash shortfalls.
Using Grace Periods To Extend Cash Flow
Many credit lines have a limited window during which balances will not incur interest. Typically, this period is thirty days or less, with interest compounding at the end of every statement period after that. If your needs are short-term and money is coming, this can allow you to avoid late payments and stressed relationships with suppliers while keeping you from having to starve funds out of another area of the company. That is the most unique and positive benefit to credit lines, and the one that allows them to be a single-resource solution to cash flow issues for many businesses. Don’t wait to get started, lines of credit are a vital resource for new companies and established operations alike.