Do you rank among successful companies? Congratulations! However, a successful company can be even more successful. And the success goes hand in hand with the increased need for financing. In addition to growing profits and sales, receivables, goods and materials in stock, and work-in-progress, which tie up money, usually grow as well. How to improve cash flow so that it does not mean an expensive solution for the company? 

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Reliably ensure the payment of liabilities 

When planned expenses are in conflict with income, corrective action must be taken by appropriate measures. Start by negotiating later maturities for some liabilities, then arrange earlier payment of customer invoices, and finally postpone some of the remaining payments. You say it can’t be done? Yes, you are right, this is only possible to a certain extent, as the practical implementation of these logical measures is a complicated matter. And it also depends on whether your company is stronger than your business partners in terms of the market. Improving the development of future cash flow at a company is accompanied by the development of cash flow at its suppliers and customers. Therefore, few suppliers are willing to defer payments without achieving certain considerations. 

Ensuring the ability to pay liabilities in the form of a reserve of own funds in the company’s current account is not the optimal option, as will be discussed in the following article Liquidity Management Strategies. You can address sudden shortages of money by drawing funds from an overdraft. However, the conditions of each company are different, as are the relationships with the bank, and the agreed credit limit may not be sufficient to compensate for the cash flow deficiency. 

Is factoring and forfaiting the solution? 

The essence of financing using factoring and forfaiting is the assignment of receivables. Factoring involves the regular purchase of short-term receivables by a factoring company, but for a fee including a commission and an interest. In order to use this form of financing, you must surpass a bottom line to establish a factoring relationship with a factoring company. This limit is usually the annual volume of assigned receivables, i.g. in the Czech Republic it it is the annual volume of assigned receivables in the amount of tens of millions of Czech crowns. 

Forfaiting involves the purchase of medium-term and long-term receivables. Like factoring, forfaiting is costly. So, you will improve liquidity at the cost of reducing profitability.  

Modern financing alternatives – Fundbox or Roger 

Can financing the operation of a company be more accessible? Yes, there is a solution in the form of a fast loan covered by an invoice for small and medium-sized companies. If you have an issued invoice, but you can’t or don’t want to wait for the customer to pay, you can choose from modern online services. You upload the invoice data via the website or mobile phone and select the financing option. Such a service is offered by Fundbox, for example. 

You can also try Invoice financing. This is offered by Roger or MarketFinance, for example. In this case, you usually upload an invoice received from the supplier to the appropriate online interface. The supplier requesting the discount will receive 75% of the invoice value within 3 days (or other % and timeline based on agreed conditions). They will get the remaining 25% on the due date. However, you will extend the maturity to the time after you have sold your goods. It is therefore an ideal tool for financing stocks and for diversifying external financing sources. 


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Article author: Pavlina Vancurova, Ph.D. from  Padia

Ing. Pavlína Vančurová, Ph.D.

In cooperation with Pavlina Vancurova, Ph.D., specialist in business economics from consulting firm PADIA, we have prepared the Caflou cash flow academy for you, the aim of which is to help you expand your knowledge in the field of cash flow management in small and medium-sized companies.

In her practice, Pavlina provides economic advice in the area of financial management and setting up controlling in companies of various fields and sizes. In 2011, she co-founded the consulting company PADIA, where she works as a trainer and interim financial director for a number of clients. She also draws on her experience as the executive director of an international consulting firm. She worked as a university teacher and is the author of a number of professional publications.