As a business owner you know that cash is the life blood of business. The challenge for most business owners occurs when a supplier needs to be paid or payroll covered before your customer has paid you. This is known as a cash flow gap and is illustrated as follows.

• The raw materials are purchased by a manufacturer on 30-day terms.
• It takes the manufacturer 20 days to manufacture the finished goods.
• The items are sold on 30-day terms.

This familiar scenario shows that the supplier will need to be paid for the raw materials before cash is actually received from the sale of the finished goods. In our simple illustration, a 20-day cash flow gap is created from the time the raw materials need to be paid for and the time cash is actually received by the business.


The business owner is then faced with covering this cash flow gap. So, how do you cover the cash flow gap? There are many creative ways to cover this gap, but the following are the most common methods used among the business owners surveyed:

• Delay payment to suppliers. While certainly covering the cash flow gap, this method creates credit problems and eventually increases supply costs or even worse — gets you on COD terms with your suppliers.
• Get a loan from the bank. This is a great idea but may tie up collateral needed for long-term financing projects.
• Reach into personal checkbook (many business owners have even had to put a 2nd mortgage on their house). This causes undue stress to the business owner not to mention what it does to their spouse and family.
• Draw from cash reserves on hand. This, of course, is the best solution if cash reserves are adequate to pay for the materials, thus allowing the business to cover the gap internally until payment is received from the customer. Unfortunately, however, most businesses do not have adequate cash reserves to deal with cash flow gaps.
• Turn down new orders or opportunities because of insufficient cash to buy materials. This is very disastrous because it prevents the business from growing and reaching their potential.

In a perfect world, this cash flow gap would never be a problem because everyone would pay exactly on time and terms would always match. In the real world, however, this cash flow gap is a reality.

With the competition created from a global marketplace and business expenses on the rise, business owners are beginning to feel the squeeze. In order to compete in this competitive marketplace, they are forced to offer attractive credit terms to their customers. However, they can no longer afford to wait 30–60-90 days for their customers to pay.



Many companies are now turning to to convert the biggest asset they have — their accounts receivable — into cash to be used for:

• Advertising
• Inventory
• Staffing
• Expansion
• Equipment purchases
• Marketing
• Taking advantage of supplier discounts

provides working capital solutions for businesses nationwide. Our product has helped hundreds of businesses eliminate their cash flow gap and expand to reach their full potential.

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