Thursday, July 7, 2011

Paying Vendors with a Merchant Cash Advance

Ah, cash flow. The challenge of keeping cash coming in and going out at an even pace has stymied even the best of businesses. Sometimes, the juggling act of meeting payroll, paying vendor bills, and overseeing accounts receivable and collections, all while keeping the operation going, is more pain than pleasure.

One of the most important relationships in business is the one between the business owner and the vendor. Vendors are so important, in fact, that many business owners think of their suppliers as partners. That said, the customer relationship is equally important. Does your business offer discounts to preferred customers? Does it negotiate discounts for early or cash payment? Remember that everyone’s vendor is someone else’s customer. How can you optimize your business’ relationship with vendors to keep discounts and other forms of savings flowing in?

Offer your business vendor the distinction of being your “preferred vendor.” Let them know they can count on repeat business. Give them an idea of the volume they can expect over a year. While you can use a Merchant Cash Advance to get this relationship going, remember that they are best used as an investment tool. Consider using a Merchant Cash Advance to establish the following discounts with your business’ vendors:

Negotiate cash discounts – For some businesses, owners can offer vendors prompt cash payment for a discount. Turn around is fair play, so don’t forget to offer your business customers the same kinds of discounts. Again, a Merchant Cash Advance to cover your business’ bills should only used in an emergency situation. Paying cash is not an emergency, but with discounts, it’s an opportunity to save. Put the savings in a “discount” account and watch it grow.

Negotiate early pay discounts – Offer your business vendor prompt payment in exchange for the discount. Everyone loves to be paid quickly. It eliminates the need to chase down the money that is due. Offer to pay within five to 10 days for a discount.

Be a prepaid or advance payment customer – For many vendors, requiring prepayments is something saved for customers with little or no credit. But why not become a prepaying customer to your business’ most secure vendors…at a discount, of course.

Conventional wisdom has it that companies improve cash flow by sitting on their cash, delaying paying their bills until the last minute, thus allowing that cash to earn interest. However, for companies with the available liquidity, paying bills faster, and taking the discount, but also making advance payments, can improve profitability and cash flow.

Remember, while a Merchant Cash Advance provides working capital that business owners can use to cover sudden expenses, disruptions in services, or to stabilize cash flow during emergencies, the best use for a Merchant Cash Advance is as an investment in your company’s growth.

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