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How Vendors Can Even Out Cashflow With Credit Savvy

by Raymond Joabar, American Express OPEN
Posted On: 10/10/2008

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NEW YORK CITY -- In a slow economy, credit is an important cashflow tool that can help you cover temporary cash shortages and emergency expenses, as well as invest in growth opportunities. But as useful as credit is, it's critical to make it part of a complete cash management plan. Otherwise, you may be prone to overusing or misusing credit, instead of making it work for your business.

Cashflow management is a challenge for many small companies, with one in four small business owners citing cashflow issues as something that "keeps them up at night," according to the Small Business Monitor, a semiannual survey of business owners conducted by American Express OPEN. In fact, nearly half of entrepreneurs report experiencing cashflow issues, with those affected often accessing their personal or private funds, using a line of credit, putting off purchases or using a charge card or short-term loan in order to address their concerns.

To make sure you're prepared to use credit wisely, keep these basics in mind to measure, monitor and manage the cash that moves in and out of your business.


First, know exactly where you stand with a cashflow statement. Poring over an income statement alone won't shed light on a company's cashflow situation. That's because income statements only reveal sales, expenses and profits at a given moment. A cashflow statement, however, shows the movement of money in and out of a business over a specific period of time, whether a week, month, quarter or year.

A cashflow statement will show not only what cash is left at the end of the month, but also indicates the amount that entered and left the business. In other words, it will make it easy to see whether you're adding to your business's reserves over time, or slowly eroding them.

There are some simple balance-sheet calculations that can help a business owner understand his or her cashflow situation. One that is important for vending businesses selling goods such as snacks or soda, for example, is a calculation of the number of days it takes to turn inventory.

If tracking cashflow seems daunting, then take the time to speak with a savvy advisor, your CPA or a financial consultant, because there's no replacing the knowledge you'll gain from these basic figures and calculations. Consider the cost of doing so an important investment in your business.


Understanding how cashflow problems occur is your best defense. A vending business's cashflow problems can arise from either end of the business cycle -- spending or receiving. Looking at the spending side of the equation, for example, consider periods of growth when a company needs to invest in inventory and equipment to thrive. It's necessary to expand to take advantage of good market conditions, but growth expenditures can quickly deplete precious cash reserves. Businesses also spend on a variety of operational costs, such as truck maintenance, equipment servicing and repair, and phone and Internet connections.

On the other side of the ledger, there must be a steady flow of money coming into the business, or reserves will run dry just from covering basic expenses. While many vending businesses generally operate on a cash basis, you should be careful not to overlook all sources of revenue. If you occasionally buy and resell vending machines to other companies, for example, make sure you can collect on time. Be wary of accepting partial payments or agreeing to a rent-to-own or leasing agreement unless you're willing to accept the risks that come with collecting debt.


An ounce of prevention is worth a pound of cure, so get serious about minimizing your business's fixed expenses. Review your service routes to gain efficiency and reduce labor and gas expenses, because backtracking and unnecessary visits quickly eat away at cash. Also, minimize cash needs by using temporary help to lend a hand in busy periods whenever possible.

When making purchases for your business, look for noncash ways to get what you need. Credit-card rewards programs can be effective cash substitutes, and bartering with other businesses for products or services may be an option.

Of course, many expenses must be paid in cash. Vending companies dealing in goods, for example, are generally hit by upfront inventory costs. One way to even out cashflow is by delaying payment through trade terms with vendors. Try to negotiate terms that will allow you to defer payment beyond the typical 30 days and reward you with a discount when paying early. Larger, more established businesses will have an easier time negotiating these terms, but small businesses with a good reputation for timely payment will have some room for negotiation.

One way to gain trade-like terms from vendors and eliminate the need to negotiate is with the PlumCard, a new financing tool from American Express OPEN that offers small-business owners trade-like terms on virtually all purchases. It was designed specifically for vending companies and other small businesses that face high upfront costs and often experience variable cashflow. The PlumCard provides business owners with flexible trade-like terms -- the option to defer payment for two months interest-free or receive early pay discounts for just about everything purchased with the Card. You can get more information at plumcard.com.


Consistent growth is the best way to smooth out bumps in cashflow. When growth opportunities arise, plan carefully with an eye on projections. Make a conscious decision about how much you have to spend to reach your goal and how long it will be before you pay back the debt.

Every investment, whether in inventory, people or equipment, should have a clear return. Make sure each earns a profit, but also look at how long it will take to collect them. Likewise, if you look at each customer as an investment with a scheduled return, you'll not only improve cashflow, but profitability too.


Once you have a solid cash management plan in place, there will still be times when you need to a little help to even out cashflow. That's where credit comes in. Be prepared by making sure your company has several sources of financing. It pays to plan ahead, because some financial institutions may be more likely to extend lines of credit or loans to your company when it is in good financial health, and less likely when cashflow problems have already taken a toll on your finances. When seeking financing, be careful not to overlook special lending programs for which your business may qualify, such as those designed to assist small businesses owned by women or minorities.

Once you have credit available to you, use it wisely. Short-term financing options such as lines of credit, short-term loans or credit cards are best used for short-term cash needs. Likewise, long-term or secured loans should be used for the purchase of long-term investments.

Entrepreneurs go into business because they thrive on the excitement of a good challenge, but even the most daring entrepreneur can do without the stomach-churning, rollercoaster ride of variable cashflow. Rid yourself of these avoidable bad times by keeping an eye on cashflow, and enjoy the real thrills and excitement of owning your own vending business.

RAYMOND JOABAR is senior vice-president and general manager for American Express OPEN, the nation's leading issuer of payment products for small business owners. American Express OPEN, a division of American Express Co., serves small business owners and supports them with tailored products.