Since you’ve found yourself here on this blog, it’s safe to assume you’re interested in cash flow financing in some capacity. You may be a seasoned business owner experienced in dealing with business financing, or you may be looking at financing options for your business for the very first time.
Cash flow financing is a way to turn your sales into cash very quickly, so you are able to use those funds to run your business.
A business may be doing very well on paper and still have financial issues because of cash constraints. Unless your customers pay up front, it could be 30, 60 or 90 days until you see the cash from a sale. That delay causes businesses to go bust.
Even worse is if your sales are heavily concentrated in one or two large customers. A late payment from these customers throws a monkey wrench in your entire business.
I’ve received so many calls from clients who urgently need funds to meet payroll in 24 hours. You don’t need me to tell you that is not a good place to be as a business owner. The last thing you want to do is miss payroll and hurt the people who keep your company alive. But that situation is very common when you don’t have a handle on your cash flow.
The top priority of any business owner should be to make sure you have enough cash to pay your payables and grow your business. When the nature of your business makes this difficult, cash flow financing is a great way to smooth your cash flow.
Using Factoring To Smooth Your Cash Flow
Factoring is one of the many ways to use your future cash inflows to finance your business today. It allows you to get cash immediately after invoicing. You don’t have to worry nearly as much about how the timing of payments from your customers matches up with when you need to pay vendors and other expenses.
How Factoring Works
When a sale is made, you generate an invoice as you normally would. That invoice is then assigned to a factoring company who gives you cash up front. This is usually 80% of the face amount of the invoice.
The factoring company sends the invoice to your customer. When the invoice is due, your customer pays the factor. Then the factor sends you the balance of the invoice minus their fee.
Benefits Of Factoring
The biggest benefit of factoring is the impact on your cash flow. Cash is available almost immediately after a sale is made. In addition to this, there are several other benefits that you might not have thought about.
- The factor underwrites each customer that you factor invoices for. This gives you credit insight into your customers that you wouldn’t get on your own.
- Collections are handled by the factoring company. This saves you the trouble of chasing past due invoices.
- You have full control over the financing. Only factor invoices when you need the cash. You don’t pay for funds you don’t need.
Be Proactive In Your Cash Planning
Don’t wait until your back is against the wall before you look into financing your cash flow. Planning in advance gives you more time to evaluate your options. You don’t want to be forced into a bad deal just because you had no other options.
Financing should be beneficial to your business. It shouldn’t be a burden. Look at your needs well in advance, determine the options available that fit those needs and choose the type of financing that provides the most value to your company.
Cash flow financing is a great tool that helps solve problems and provides the opportunity for the continued growth of your business.
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.