Using a Merchant Cash Advance for Cash Management

There are a lot of ways your company could use a merchant cash advance, but the most popular use cases all seem to involve short-term opportunities where demand spikes are predictable and easy to take advantage of. The fact is, an MCA can also be a great cash flow management tool, especially if you are looking to gain control over your budget without strangling your company’s access to resources. How does it enable you to reach that balance? It’s simple, and it all comes down to using the MCA regularly alongside your existing cash flow control tactics.

How Often Should You Finance?

Using a form of asset financing for cash management means getting your ducks in a row on the timing of the advances. You need to be able to bring in the capital on a predictable basis, but how predictable? It depends on exactly how you use this for cash management. If the MCA is a tool to provide you with a budget across slow periods, then you might only use it once or twice a year, timing the application for a couple of weeks before you’re out of operational cash.

The other popular technique is to set an operating budget based on the estimated repayment time for your MCA. That budget is your MCA value, along with any cash reserves you need to make up the difference. That cash becomes your operational cash until the end of the term, with the income you bring in going to your reserves and the repayment of your advance. When you pay it off early, the additional income can be taken as profit or reinvested in your business.

Merchant Cash Advances for Emergency Funding

Another option is to use the MCA as emergency financing, relying on other cash management tools for the day-to-day budget items you can predict. This is a strong move to make if you have resources like a business credit line because it leaves you with the ability to access financing for unexpected problems without disrupting your cash management processes. If you need to make a speedy repair due to a facilities issue or a vehicle breakdown, an MCA can be the ideal way to bridge the gap between your cash on hand and your invoice costs.

Whichever route you choose, the key is to give the merchant cash advance a clearly defined role in your strategy, so you know exactly when it is the right tool for the job. With several specific financial tools for different contingencies, you can keep your business on track through almost any setback.