Cash reserves can be increased by the collection of receivables, tightened credit requirements, method of pricing products, loans, increased sales and the timely collection of account receivables. As credit and terms are tightened more customers must pay cash for their purchases, increasing the cash on hand and reducing the bad debt expense. While tightening credit may be a strategy in the short run it may not be advantageous in the long run. A liberal credit policy allows more customers the opportunity to purchase your products or services. The increase in sales with this liberal credit policy must be greater than the potential increase in bad-debt expense.
Commercial loans are often necessary to cover short-term cash flow requirements.
Revolving credit lines and equity loans are common types of credit used in this situation. Remember that bank financing may not provide immediate cash resources. A sufficient lead-time will be necessary to complete the loan application and receive a final decision from the bank. Increased sales would appear to increase cash flow, but be careful. For many companies a large portion of sales are purchased on credit.