Cash Flow Financing Options: The Pros & Cons

Cash flow difficulties can occur in any business, of any size. It could be that your suppliers are delayed in delivering your goods or services. Or, collecting cash from your customers could be taking more time than you anticipated. Whatever your needs, cash flow finance may be a great choice for your business.

Cash flow finance is short-term business lending, designed to cover your business’s immediate cash needs – allowing you to fund ongoing business operations and cover large cash outflows, such as tax payments. Typical forms are: bank overdraft, short-term bank loans and trade credit.

However, as with everything, there are pros and cons. In this article, we are going to break down the pros and cons of cash flow finance to help you decide which of these lending types is best suited to your business.

Advantages of cash flow finance

1. Improve Cash Flow

Short-term finance can help support your business growth by giving you security of income: improving cash management; and, giving you more control over business direction and growth.

2. Support business continuity

A healthy supply chain relies on the prompt payment of key suppliers. Consequently, a lack of cash can seriously impact business continuity. Short-term finance makes sure cash is on hand for the timely settlement of your accounts payable.

The Options: Pros & Cons

Although cash flow finance has a number of pros, some of the most common types available also have some cons. In this section, we are going to go through the specific pros and cons of 4 short-term cash flow finance options.

Bank Overdraft

Pros: A bank overdraft is possibly one of the most easily arranged forms of short-term finance, and competition amongst banks for this business frequently results in low borrowing costs.

Cons: The security of lending with a bank overdraft is very low. Banks have the power to withdraw an overdraft facility with little to no warning, which could leave your business exposed to dangerous cash shortages. There can also be additional fees applicable to your facility, such as arrangement or administration fees. In some cases, security is also requested for this type of lending, possibly in the form of a director’s guarantee.

Short-Term Bank Loan

Pros: Short-term bank loans offer a much higher security of lending than a bank overdraft. This high security makes short-term loans a good option to support business growth.

Cons: Although the security of a short-term bank loan is high, the freedom is low, as loans normally have many restrictive terms attached. And, the more urgent the need for a loan, the higher the interest rate charged.

Trade Credit

Pros: This type of credit is usually available from suppliers to your business. So, if you need credit instantly, trade credit is a good option. It is also directly linked to your purchasing requirements, so you only access the credit when you need it.

Cons: Security of lending is low (it is entirely at the supplier’s discretion) and interest rates are typically high.

Trade Finance

Pros: Trade finance offers the best of other forms of short-term lending: cost-effectiveness, flexibility, security and freedom from restrictive terms. And, because it is directly linked to your trade flows, trade finance scales automatically with your business activity.

Cons: This type of lending has historically been restricted to large companies with very strong credit ratings.

Funding with a Difference

At Gii, we open up the benefits of a comprehensive range of trade finance products to both corporates and SMEs in all business sectors. We are able to support most established businesses, through our network of both bank and non-bank institutional funders, to provide security and flexibility of lending.

Our full service, cloud-based Trade Finance Platform is geared up to provide quick onboarding and offers a very efficient form of financing, which you can expand and contract in line with your business cycles. Additionally, unlike overdrafts and other traditional forms of business finance, where you pay for borrowing facilities whether you use them or not, with Gii you only pay for what you use.

To find out more about how trade financing can help your business, call us on +44 (0) 2078594742, or email us at More information can also be found on our website: