Even after many years in the commercial finance industry, it’s still shocking to hear small business owners talk about struggling to make payroll. There are always all sorts of reasons for this uncomfortable situation.

• Poor planning or no planning
• Slow collection of receivables
• Unexpected events causing a drain on cash

The reason that is most preventable is the lack of planning. In order to successfully operate your business, you have to think ahead a little bit and figure out:

• What bills are coming due?
• What’s my payroll looking like?
• How are my inventory levels?

I’m not saying I know all the questions or have all the answers. If there’s something I’ve learned, it’s that you can’t operate your business without planning your cash flow. You also can’t successfully operate a business without a contingency plan. Believe me, there are so many things to worry about when it comes to operating a business. The last thing you need to be doing is scratching your head over how to make payroll.

Cash Is King
It’s true: in business, cash IS king. So you’re probably asking what the best ways are to get your hands on cash so you can make payroll:

• Find an investor to inject a little capital into your company. Be careful with this option, as you lose a portion of your company by going this route.
• Efficiently convert receivables into cash. This is, of course, easier said than done.  A lot of companies (especially large companies) won’t pay for 30, 60 and even up to 90 days.
• Obtain a small business loan, such as a factoring line.

Factoring
The simplest and most efficient way of improving cash flow is to look at payroll financing or set your company up with a factoring line.

Factoring is where you sell your company’s receivables relating to creditworthy customers to a third party, known as a factor, at a specified advance rate (typically around 80%). Once the invoice is paid, then you get the remaining portion less applicable fees. 

This eliminates the worry about making payroll.

The Benefits
Besides making payroll, benefits to factoring your receivables include:

• Short-term business loans are easily accessible. With advances in technology, many banks and small business lenders have made it quick and easy to obtain small business financing. In some cases it takes only a few days, and with little paperwork required.

• Factoring lines are considered short term. You are not indebted to a lender for a significant period of time.

• Costs related to factoring lines are easily managed. If you obtain a factoring line, then you only pay fees based on the outstanding invoices. If you factor invoices related to strong, creditworthy customers that pay quickly, then you save money on the fees paid while still improving cash flow. I’ve seen many businesses benefit from the use of short-term financing and keep fees to a minimum. 

• Factoring lines provide relief when your cash flow is tight. There are many cases where a small businesses is waiting for a large invoice to be paid, which results in cash flow becoming too tight for comfort. This is where a short-term business loan through factoring helps to alleviate that strain.

Fast A/R Funding specializes in helping small businesses bridge the cash flow gap with factoring. Schedule a demo below, or call 888.833.2286 to speak with one of our small business finance consultants.