Getting paid on time is not just a matter of convenience for startups but a business lifeline. According to a fact,” around 87% receive late payments from clients.” Thus, with less capital and tight timelines, late payments prove a severe setback.
Businesses find it challenging to leverage the opportunity or make changes in the firm. Things like buying new equipment, financing vendors’ pay, and the payroll require consistent cash flow. Late payments affect this and thus slow down the business process. It is the reason many startups resort to startup business loans to bridge their needs.
Startup business loans are a facility for short- and medium-sized businesses needing quick cash to finance a requirement. Usually, a business can get up to £25000 instantly. The maximum cover a business can leverage under this is £2m. However, businesses can get the required amount only if it meets the eligibility and affordability criteria. With a sound business plan, existing revenue, and well-managed finances, a business may qualify.
The blog lists the best ways a startup business loan may help a firm run operations smoothly despite late payments. If you are a beginner startup or an established one, you may benefit. Let’s first understand the impact of late payments on business.
How do late payments impact a startup’s growth?
A business’s growth and smooth functioning depend on the cash flow. Clients are the contributors to the cash flow process. Thus, late payments can have repercussions for small businesses. Sometimes, a single payment can prevent a business from ultimately falling.
For example, if you need money to finalise a deal with a low cash reserve, one depends on the client’s payment. If you get it, you can finalise the deal hassle-free. However, times may not be fortunate every time.
Sometimes, not financing the requirement in a timely manner may lead to adverse situations like whopping business loss, business shutdown, employee resignations, and impacts on reputation. You may also lose some of your regular customers and suppliers. It is indeed a loss.
6 Ways Startup Loans help counter cashflow issues
Addressing late payments is probably the best solution to the problem. Launch a quick mail to your clients regarding the payment with a timeline. Attach a penalty after every delayed day. It will help you get the payments timely.
Additionally, review your client-business terms and modify them from the payment’s perspective. Meanwhile, startup loans may help you meet short and medium-term business needs. It also prevents business loss. Here is how:
Ensure timely payments to suppliers and employees
Suppliers and employees are the two most important pillars for any startup. Thus, sanctioning payments timely is critical. It helps you ensure friendly and healthy relationships. With startup loans, you can avoid delayed payments and prevent penalties. Some suppliers may demand due to late payments. With a timely loan amount sanctioned in your account, clear the dues quickly.
Likewise, you can eliminate the stress of losing some of your best employees with timely salaries and increments.
Grants financial flexibility to purchase equipment
Startup loans allow you to borrow flexibly and finance issues quickly. As mentioned above, you can borrow up to 2m to support the equipment purchase. Sometimes, a business dissuades from purchasing equipment due to low financial backup. It waits and requests some clients to pay in a timely. However, some clients may not respond to constant messages.
What will you do here?
If the equipment is the prime need for the business, the purchase must not wait. Finance the part or whole costs by using the loan. However, ensure that you can clear the payments timely.
Get instant finance regardless of credit status.
Instant funding for startups is a dream come true. This is because mainstream lenders prioritise sufficient operational history and revenue status to grant loans. Consequently, a startup loses the opportunity. It further halts the growth and revenue structure.
Thus, startup loans for businesses help entrepreneurs get instant funding regardless of credit history. You may get startup loans with a bad credit profile by proving affordability. You can do so by providing recent bank statements, asset information, revenue structure and growth, recent project information, and business plans. If your existing financial situation reveals the payback potential, you may get the loan.
Restrict the domino effect
As mentioned above, one late payment can largely affect business operations. If a client delays payment, you postpone the supplier’s payment, he further delays the manufacturer’s payments, employees’ payments also get delayed, and they resign. It may ultimately lead to a business shutdown.
You can counter and stop this domino impact by using startup loans. Instead of waiting for the client’s payment, counter the employee’s and supplier’s payment immediately. It will prevent severe business loss.
Meet working capital requirements in a timely
Apart from employee salaries, meeting other working capital requirements is also critical. Startup business loans may help you finance stationery, raw materials, inventory updates, pay taxes, etc., for smooth functioning.
The process is as smooth as butter. You do not need to engage in lengthy documentation. Instead, you can get the money by only providing necessary documents like- bank statements, credit reports, IDs, business plans, and business registration.
Clear pending debts and prevent relationships
Businesses receiving late payments from clients often end up in penalties by creditors. Moreover, it impacts their credit score, and creditors refrain from lending. Even if the business owner gets one, he gets one at high-interest rates. It further adds to the credit and impacts the credit score. This is particularly the case with the tech and construction industry.
With startup loans, you can counter this issue as well. If you have been delaying payments for a long due to cash scarcity, clear it now. Startup loans help you pay the debt quickly. Analyse the total debt you have and borrow a lump sum. You can pay separately to your creditors. It will help you clear debt and qualify for better interest rates on further loans.
Bottom line
Thus, startup loans are a one-size solution to counter the consequences of late payments. It helps you be on top of business changes and opportunities without compromising.
Identify and counter late payment issues by revising your terms. Ensure a sterner approach while approaching clients for payments. It is the rule of running any business.
Additionally, devise payment strategies that benefit both client and business. For example, you can provide a 10% discount on the next project with timely payment. Things like these ensure timely payments and prevent business loss.