Why Invoice Discounting is the Answer for your Cash Flow Woes

Posted by John Mauldin on Mon, Apr 22, 2013

 Invoice discounting how it tightens up you receivables

At the end of the day, we all know what your business needs to be success……………..CASH.

Remember folks………………..CASH IS KING!

If you’re asking, “okay that’s great, but how do I get the cash I need”?  “My customers take forever to pay me”

I think I have the answer to your cash flow woes.  But, I still would like to look at all options:

  • Find an angel investor willing to take a chance on your company.  Keep in mind you may lose ownership and managerial and decision making control over your company.                                                   
  • Efficiently collect your receivables.  Chances are if this were taking place we wouldn’t even be having this discussion.  Face it…….your customers paying in 30, 60, and even 90 days can make it more than challenging to manage your cash flow.                                              
  • Consider small business financing.  There are so many options out there for you to choose from, one of those being invoice discounting or receivables financing.

Short Term Financing……

Really one of the quickest and easiest forms of short term financing is invoice discountingInvoice Discounting is another term for factoring. 

Factoring is a form of receivables financing where you sell your credit worthy receivables to a third party also known as a factor.  Advance rates can vary, but are around 80%.  When the invoice paid you get the remaining portion less any applicable fees.

How it can Help You………

It’s pretty simple…..by turning to invoice discounting (or factoring) you get a hold of the cash you need to pay the bills.

As opposed to waiting 30, 60, or even 90 days you get your money up front.  You are able to get away from being disorganized and not planning your cash flow because you have the cash you need.

In addition……with the advances in modern technology, you can get funded on an invoice in as quickly as 24 hours.  Depending on the Company you choose to work with as well it is virtually paperless making for a very efficient process.

Something else to consider as well, the factoring company also monitors your aging (or at least the invoices you factor).  They can play an integral role in making sure receivables are collected because they have a vested interest as well.  I can’t tell how many times in my tenure in the commercial finance industry where I’ve come across issues with a shipment and was able to notify the client.

Some Helpful Tips…….

We all know that invoice discounting gets you the cash you need fast and efficiently.  Yes…..there is a price that comes with it, but it won’t necessarily break the bank.

I want to pass along some tips and hints to you that could save you some time and money:

  • If you just have times where you find cash flow is tight, just look at only factoring during those times.                                                      
  • If you find that some customers pay better than others, you may only want to factor receivables related to your most credit worthy customers.  They are the ones that will pay quicker and will save you in factoring expenses.                                                                    
  • Do you offer quick pay discounts?  If the answer is yes, then you may want consider ending this.  When you factor an invoice……you already have the cash you need to conduct your day to day operations.  Also more times than not, customers will take advantage of the quick pay discount even if they’re paying past the quick pay deadline.

So at the end of the day…….if your cash flow is tight and you’re just not sure how you’re going to make payroll, pay your vendors, buy inventory.  Take a look at your customer base, and your slow turnaround accounts receivable collection, because I think you’ll find that’s the root cause of your cash flow woes. 

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Tags: Accounts Receivable Factoring, Invoice Discounting