Financing and Working Capital

Using credit to stabilize your cash flow

Don’t let unsteady cash flow keep your business from prospering. Explore how you can leverage different credit products to manage cash flow and take steps toward financial health.

Published: January 18, 2019

Steady cash flow is vital to the financial well-being of a business. But with healthy cash flow being subject to numerous factors — both internal considerations like payment policies and external factors like seasonal fluctuations — reaching financial stability can be a complex equation.

However, businesses can leverage cash flow projections and a variety of credit products to steady an unstable cash flow. Steve Milani, vice president, business cards & lines manager at Wells Fargo, offers more information on the types of credit available and their benefits.

Wells Fargo Works: When it comes to unstable cash flow, when do businesses face the most struggles?

Steve Milani: It’s common for so many businesses to have unstable cash flow at times that it’s easier to say which don’t. For the most part, medical professionals and attorneys seem to have more stable cash flow. Manufacturing businesses however, experience ebbs and flows of cash flow on a pretty regular basis. Newer businesses, as well, tend to have more instability than established ones.

Wells Fargo Works: How can credit products smooth cash flow needs over time?

Milani: Depending on if they need access to credit on a quarterly, monthly, or even weekly basis, businesses can leverage credit cards, lines of credit, and loans. Determining which product is right for you comes down to how quickly you plan to pay it back.

Wells Fargo Works: When should a small business consider a line of credit?

Milani: If a business owner needs to buy additional inventory or cover short-term payroll needs, a line of credit will allow them to do so. A line of credit provides businesses the flexibility to use as much, or as little, financing as they need and to pay it off either immediately or over a period time — whichever makes the most sense for their situation.

Wells Fargo Works: When would a loan make more sense than a line of credit?

Milani: A loan is a longer commitment — usually between 12 months and five years. A loan typically offers a lower interest rate than a line of credit, and you have to pay a set amount each month. Many small businesses like to be able to budget for that expense each month.

Wells Fargo Works: When should a business owner use a credit card?

Milani: Unless you can pay off credit card debt the following month, it’s not smart to use credit cards for large purchases due to the higher interest rates. You may be better off using a line of credit, or even a loan, for those large purchases.

Wells Fargo Works: Overall, how does having stable cash flow benefit businesses?

Milani: Peace of mind is everything. If you know you have the ability to tap into credit in case anything comes up while running your business, you’ll be able to concentrate on actually running your business rather than how you’re going to cover expenses.

As you continue to explore the various types of credit available to you, ask yourself questions like: Is now the right time? In the case that I face a negative cash flow, do I have a contingency plan that will allow me to make my payments on time?

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