Turn Your Assets into Cash

Assets are great, but understanding how to use them to increase you cash is imperative. In the blog posting Know What Causes Your Cash Balance I discussed the need to understand just what actually causes your cash balance to be what it is. Now I want to go a step further to deal specifically with other ways to turn your assets into cash.

The Normal Process

When you buy inventory it has to be paid for eventually. When you sell products it is critical that you collect in a timely manner to pay for the inventory and other expenses. So, what happens when you cannot collect on time?

Other Ways to Get Cash Out of Receivables

If you are not collecting your receivables fast enough there are other options. You can use factoring by either outright selling the receivables without the buyer having any recourse should they not be able to collect. You can also sell the receivables with the understanding that if the buyer cannot collect in a timely manner then they can have the invoices they bought replaced with others from your accounts receivable. In either case you will pay a price in that what you receive for your receivables will be discounted, so this works best if you have strong profit margins. The amount of the discount will depend on such things as how old the receivables are and the typical collections times for your business and industry.

Another way to temporarily get cash out of your receivables is to borrow against them with an asset-based loan. This is very common with a line of credit. The cash you get likely will be significantly less than the receivables balance. Regardless, along with factoring or selling your receivables this is another way to turn you assets into cash.

Ways to Get Cash Out of Inventory

Inventory is another area where cash gets tied up. If you have inventory that is very slow moving, especially if you don’t plan on replenishing it, then you might want to consider liquidating it. Face it, if it’s been sitting on your shelves for a year and nothing has changed to make you think it will suddenly start selling, aren’t you better off at least getting something for it?

Another way to use inventory to provide cash is the same as with receivables in that you can get an asset-based loan. This is also a common way to secure a line of credit.

If you are finding yourself cash strapped, consider these alternatives to turn you assets into cash. But, be cautious when you do something like an asset-based loan. It is easy to find yourself in a position of being unable to repay the loan in a timely manner and the loan becomes what is known and an evergreen loan as it never gets paid down to zero.

If you want to know more, contact AimCFO – Contact

As always, your comments are welcomed.

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