Ravi Chandran
Skipping a monthly payment may be the most short-sighted of all reasons to refinance, but improving your short term cashflow is a close runner up
There are many reasons to refinance your home, but they all boil down to one key goal: saving money. In that regard, refinancing into a longer term at a similar or lower rate than you are currently paying will lower your monthly payment. The closing costs and the extra interest you’ll pay in the long run might make you regret your decision in a few years.
So, the rule of the thumb is, if your credit is good enough to get a new mortgage, then it’s good enough to get another type of loan that could fix your short term cashflow issues.
In such a context, a personal loan allows the borrower more flexibility. This is one if its biggest advantages over renovation loans. When one takes a personal loan, the sanctioned funds can be used at the borrower’s discretion, including for the renovation of a home.
As with any loan, the applicant must meet the bank’s eligibility criteria. This is why it is important for anyone facing short term cashflow problems to speak to a loan consultant. A loan consultant will be able to help you analyse what loans are out there by the different lenders and get you a loan which meets your unique borrowing needs.
If you are facing a looming cash shortages, the first thing you have to do is to go through every single expense line item in the budget and see what you can totally eliminate. Then you see what you can cut to shreds. Then if you are still looking like you are going to run out of money, you should go back and make even deeper cuts.
When you make these budget cuts, you should print the Budget out and take a big red marker to the hard copy, sit back on a couch, and try to really creatively think of expenses you can cut and burn, before they cut and burn you!
By using a big red marker or by redlining the budget cuts, you can vividly see the changes. This way, you feel like you are making progress. You feel you have some control over the situation, and then your confidence tends to get restored, which is very important.
A big part of getting out of cashflow problems, avoiding trouble, and running a successful business is trying to feel okay about yourself and your ability to run the business even in difficult times.
Speeding Cash Inflow
The fastest way to improve short term cashflow is to try to get paid more quickly. Look at all of the receivables owed to you. Determine whether or not there is some means by which you can receive payments earlier than anticipated.
Get on the phone. Use your most upbeat tone, and try a little honest begging: “We’re a little tight on cash right now, and I would greatly appreciate it if you could pay us.” If necessary, offer small discounts for faster payments or prepayments.
If you are working on custom projects for businesses or consumers, don’t hesitate to ask for progress payments, even if they weren’t part of your initial terms.
Slowing Cash Outflow
Decide how serious your situation is, then decide which bills you must pay. Remember, very few businesses of any size pay their bills within the stated terms.
If you owe a particularly large amount of money to one key supplier, be cautious. If you intend to pay some of the bills significantly late, advise it of this in advance. If you are fairly certain as to when, specifically, you will be sending payment, consider offering this information as a promise in exchange for continued credit on new purchases.
Deciding Which Creditors to Pay
Make sure that you, not your creditors, decide who gets paid and when. Don’t be pressured by phone collectors, or by the firms that complain the loudest. Pay those creditors that are most important to the continuation of your normal business operations first.
Some creditors may threaten, but don’t panic. If your account is turned over to a collection agency, this will be the least of your worries. If a creditor does take you to court, the hearing date will be months down the road.
If you don’t know when you will be able to pay a bill, don’t let a creditor push you into making a payment promise. If you renege on a payment promise, the creditor will only become more aggressive. Instead, tell creditors that you have placed them on your payment list. Assure them that you haven’t forgotten about them. Let them know they will be paid as soon as possible, but you just can’t say exactly when that will be.
Non-crucial Creditors
Don’t forget about non-crucial suppliers, but pay these vendors only when you have the extra funds. Again, as you did with crucial creditors, prioritise and pay those suppliers whose continued services or goods are most important to the maintenance of your business.
