Cash flow is a crucial component of business success. It determines the viability of ongoing operational activities and supports growth potential.

With the average small business in New Zealand experiencing negative cash flow for up to a third of the year, being prepared for different cash flow scenarios is more important than ever.

In this article, we will explore what constitutes good and bad cash flow scenarios, the financial funding facilities available, particularly focusing on Invoice Finance and Business Loans, and outline custom repayment plans suitable for different cash flow situations.

Understanding Your Cash Flow Scenario 

Let’s start with the basics. What do we mean by good cash flow? Or, in other words, how should your custom repayments be helping you cash flow and your business?

In essence, a good cash flow scenario is characterised by consistently positive cash inflows. In other words, your incoming cash should exceed your outgoing cash.

Key indicators of good cash flow can include:

Positive Operating Cash Flow

This means that your business is generating enough cash from sales that it can cover both operating and production expenses as well as funding to invest in growth.

Healthy Amounts of Cash Available

Free cash flow refers to the working capital available after capital expenditures. Having healthy amounts of free cash flow allows your business to pay debts, reinvest, or even distribute dividends.

Sustainable Growth

The key word here is “sustainable”. A healthy and growing business should maintain a balance where there is both growth in sales but without liquidity issues that would arise as a result of unrestrained or disproportionate cash outflow compared to cash inflow.

Conversely, key indicators of bad cash flow scenario can include:

Negative Cash Flow

Negative cash flow occurs when outflows consistently exceed inflows. It can be an indicator that your business is in financial distress and is unsustainable in the long term. Explore strategies to handle negative cash flow and keep your business on track.

Dependence on External Financing

While financial funding solutions can be the fuel your business needs to succeed, relying heavily on loans or credit to cover operational costs long term can indicate underlying issues with cash flow generation and management.

Delayed Payments

Frequent late payments from customers can exacerbate cash flow problems, making it challenging to meet obligations, even when your business is growing in revenue.

To find out more about how to boost cash flow for your business, read our blog here.

Financial Funding Facilities 

Financial funding facilities play a critical role in helping your business manage cash flow effectively. The right financial solution should have enough flexibility in repayments and be tailored to suit your business and your goals.

That’s exactly what the lending specialists at ScotPac are here for. So, how can we help?

1. Invoice Finance

Invoice Finance, which is also referred to as Invoice Factoring or Debtor Finance, provides businesses with immediate access to cash.

Instead of requiring property as security, Invoice Finance leverages your outstanding customer invoices as collateral, allowing you to access tomorrow’s cash inflow today.

This flexible funding solution is suitable for businesses of various sizes and industries, including small and medium enterprises facing slow-paying customers or seasonal cash flow challenges.

Invoice Finance can be the solution you need for effective cash flow management and long term growth.

2. Business Loans

Business Loans are a fast and effective way to help business manage gaps in cash flow or take advantage of growth opportunities.

ScotPac’s business boost loans of up to $200,000 can be customised to suit your needs without industry restrictions. Plus, with online application process, the procedure is straightforward and easy.

Custom Repayment Plans for Different Scenarios 

How can custom repayment plans help for different cash flow scenarios?

If your business has strong cash flow (i.e., positive cash flow), you can negotiate more favourable terms with your funding facility. This can include options like accelerated repayment options where you can pay off your business loan more quickly. Or, in the case of Invoice Finance, you may have the working capital to invest in more efficient debt collection/accounts receivable and thereby lowering the fees associated with the funding facility.

However, while repayment plans can vary for businesses with good cash flow, it can be even more critical for bad cash flow scenarios. If your business is experiencing negative cash flow or gaps in accessible working capital, make sure to consult with a ScotPac lending specialist.

There are several options available to help you manage repayments, such as:

  • Extended Payment Terms: Longer repayment periods can ease pressure on monthly budgets by lowering the amount of each repayment.
  • Interest-Only Payments: Some funding solutions allow businesses to only pay interest in the beginning before having to make principal repayments.
  • Contingency Plans: Establishing backup funding options with your lender can help your business manage unforeseen expenses or macroeconomic shocks without compromising the financial health or long-term success of your business.

Should your business use Invoice Finance? 

Invoice Finance is a highly customisable and flexible funding solution. By allowing companies to turn its outstanding invoices into immediate cash, it can help bridge the gap in time between issuing an invoice and receiving payment form a customer.

For the average New Zealand business this can take over a month.

Invoice Finance allows for a cash advance of that working capital owed to a business without the need for property security or – and this is the critical part – fixed monthly repayments.

Repayment occurs automatically when your customers pay their invoices. What does this mean from a cash management point of view? It allows you to better align your cash inflow with outflow.

This flexibility makes Invoice Finance an effective solution for managing cash flow challenges and supporting growth opportunities for your business.

The benefits of Invoice Finance include:

  • Adaptability to various cash flow scenarios by enabling access to funds when you need.
  • Enhanced cash flow management by allowing upfront access to money owed to the business without having to wait on customers.
  • More reliable cash flow if you operate in a business with seasonal revenue fluctuations.
  • Greater control over your funding facility with options such as Selective Invoice Finance which gives you the control over which invoices you submit for financing.

Find the Right Custom Repayment Plans for Your Cash Flow Scenario Today 

Preparing different cash flow scenarios is essential for effective financial management. By leveraging the funding facilities available here at ScotPac, like Invoice Finance and Business Loans as a short term solution, you can effectively tailor your cash flow management to suit your needs and situation.

The ScotPac team have been providing SMEs with tailored and flexible financial solutions for over 35 years. To learn why more than 8,500 businesses turn to ScotPac for effective business finance solutions, or to discover which custom repayment plan is best suited for your cash flow scenario, contact our lending specialists today.