Finance

Do you need help managing your cash flow?

cash-flow

Did you know that you can be cash-rich but still have problems with cash flow? If you take on board all of your earnings and subtract all of your outgoings and find that you have a healthy balance, you could be considered to be ‘cash rich’.

The one thing that assessing your worth in this way gives you, is an overall scenario. In other words, if all of your money transactions took place on the same day, and you had money left over at the end of the day, you’d be cash rich.

Unfortunately, life isn’t like that. Things happen at different times. If you have a job, you will probably get paid at the end of the month, or sometimes at the end of the week. In the meantime, you still have all your outgoings to take into account, and these usually happen whenever they need to, whether you like it or not; your weekly food shopping, paying your electricity bill, rent, rates, tv license… They happen as and when.

Being self-employed and cash flow difficulties

If you’re self-employed, things tend to get a little more complicated. You might not receive your earnings at precisely the same time every week or month but you can bet that you’ll still have your outgoings to contend with like clockwork, if these two sides of the coin don’t line up with each other you could very quickly find yourself in a negative cash flow situation for a period of time. So, although you are cash-rich on paper, you can still experience cash flow difficulties. It’s at times like these when you might need help to manage your cash flow to allow you to pay your bills on time. IF your cash flow issues are dire and potentially damaging you might need to take out a short-term loan.

Payday loans and other options

The shortest-term loans you can take out are typically payday loans. These are so-called because repayment falls on the day your wages get paid into your bank account. The usual period of the loan is a matter of days. If judging the loan by its APR value then these loans are extremely expensive. however to get a true indicator into cost one must appreciate the intended short duration of this loan type.

Of course, payday loans are only one option. Today’s money lenders offer a range of flexible options with durations going up to something like six months. As with any loan, it is essential to find out exactly what it will cost you in full. In many cases the fact that you’re self-employed may increase your liability i.e. the risk to the lender is higher as your potential to repay the money is statistically not as secure as someone informal employment with stable pay cheques at the end of each month, however Wonga, a prominent lender states:

“To successfully apply for a Wonga loan when you are self-employed, your bank statement will need to show you receive a regular source of income. The longer the history of this steady income, the better – as we want to ensure our customers are in a position where they can comfortably repay their loan without incurring additional costs.”

Source- Wonga

So while your self-employment may not discount you from favorable loan conditions you need to essentially mimic the pattern of regular employment with regular steady deposits.

IF you’re comfortable you can provide this type of evidence only then should you think about proceeding as applying for credit and then failing to qualify for it can do a real hatchet job on your credit score. Often times a credit card overdraft on your business account may be a more effective way to cover the gap. However, in each case the red flag is very clear – you should not be relying on a ‘sticking plaster’ to cover gaps in your cash flow; there is a bigger problem at the core of your business that needs to be addressed.