Auto repair shops have lots of financial responsibilities: They need to pay employees, order supplies, pay for garage space, and more. Luckily, there are many ways for these businesses to improve cash flow.
Method 1: Save Up
While it may take a long time to build up a cash reserve, having one to two months of operating expenses saved up is very helpful. It can relieve pressure if a client is slow to pay and allow for prompt purchases of parts and supplies whenever they’re needed.
Method 2: SBA Loans
Another way for an auto repair shop to improve cash flow is through a loan backed by the Small Business Administration (SBA). Working through intermediary banks, the SBA backs loans for a variety of business purposes. For instance, the CDC/504loan program offers loans for real estate and equipment, while the7(a) loan program is for general business loans.
Method 3: Factoring or Financing
The problem with invoices due in 30 or 60 days is obvious: It takes awhile for the business to receive the money. A solution called invoice factoring solves that. The lender pays the business a large advance on the invoice; then, once the customer pays up, the lender deposits the remainder of the invoice.
The lender charges a fee for this service, but it’s a way to improve cash flow instead of waiting on an invoice to be paid in full. Large, established auto repair shops may look into asset based financing to improve cash flow. In asset based financing, the lender extends a certain amount of credit based on the borrower’s eligible assets.
Method 4: Discounts
At first blush, discounts may not seem like a way to improve cash flow–after all, they reduce the payment owed. But enticing a customer with an early-payment discount can be a way to get funds more quickly. A typical method is to offer a 2 percent discount if the bill is paid in 10 days or less.
Auto repair shops have several options for improving their cash flow. If you run such a business and want to learn more about your choices, contact Perfect Alliance Capital today.