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What are the Different Types of Cash Flow Solutions?

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  • Written By: Marco Perez
  • Edited By: Angela B.
  • Last Modified Date: 31 October 2016
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Cash flow is essentially the amount of cash funds that come into and go out of a business. Many types of cash flow solutions are used in the management of a business. These cash flow solutions are the lifeblood of a company and are essential to maintaining day-to-day operations. Cash flow solutions may also come into play during a business's expansion or in an acquisition or merger. Examples of cash flow solutions companies use include factoring, purchase order financing, lines of credit, loans, and raising the prices of their products.

Factoring entails a business discounting and selling its accounts receivables, or invoices, to a finance company, or factor, in exchange for immediate cash that is used to continue conducting business. There are three parties involved in factoring transactions: the seller of the accounts receivables, the factor and the debtor. Once the factor purchases the invoices, he is responsible for collecting the money owed by the debtor.

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Purchase order financing takes place when a finance company purchases supplies on behalf of a business based on the purchase orders of the business. This allows the business to produce its products without outlaying capital to pay their suppliers upfront. The products are then delivered to the business customers by the supplier. The business invoices its customers for goods delivered, repays the finance company the amount of money it financed to produce the goods, and collects the difference. Purchase order financing and factoring are two cash flow solutions commonly used in combination with each other.

Business lines of credit and loans are cash flow solutions that normally come from banks. A business will establish with a bank a line of credit up to a certain predetermined amount to have working capital available on demand. There are numerous loan types that a bank will provide based on the kind of business and its particular funding needs.

Raising prices is a cash flow solution in its simplest form. Acquisition and merger financing provides the funds necessary to acquire or merge with another company. Cash, stock exchange, stock purchase, or any combination of the three are the means of providing capital.

The more ways a business has of getting paid, the more customers it can serve. This means more money the business can potentially earn. Cash flow solutions such as electronic funds transfers, credit/debit card payment and pay by phone/fax/Internet are some of the manners of payment utilized by businesses as cash flow solutions.

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