Most management consulting companies are started by individuals with long track records of success in the corporate world prior to heading towards self-employment and business ownership.
Usually, management consultants start as self-employed. As the business grows and they add employees to manage their growing company, the financial aspects of running a management consulting company become complicated.
As your payroll grows, so do your financial responsibilities. Payroll is often the highest and most important expense for a consulting company. Therefore, having the financial resources to meet payroll is critical for success.
The problem: slow client payments
Large companies can be great and profitable clients. They often sign contracts for long-term services and have the resources to pay for your management consulting services. The problem is that many companies insist on paying their invoices on credit terms. As a result, you have to allow them up to 70 days to pay an invoice.
This delay can create financial problems for small management consultancies. Your company must deliver services, meet payroll, and cover all corporate expenses while waiting up to two months to get paid. Because few small businesses have the resources to wait that long, they can encounter financial trouble.
Quick payments and cash reserves
The two obvious ways to handle this problem are to either build a cash reserve or demand faster payments. Building a reserve is very effective, but it takes time — especially if you want a well-funded reserve that can cover up to six months of corporate expenses. Asking for quick payments can also be an effective technique, especially if you offer an early payment discount as an incentive. This strategy increases the profitability of your clients and can be very attractive.
Financing your invoices
One way to improve your working capital and solve the cash flow shortage is to finance your invoices. Invoice financing (business factoring) provides an advance using your slow-paying receivables from creditworthy clients as collateral. This advance provides immediate liquidity that you can use to make payroll, hire consultants, or pay other business expenses.
Improve your cash flow and grow your business
The obvious advantage of financing invoices is that your cash position improves. Ideally, you no longer have cash flow shortages and are able to run your business strategically. An even greater benefit of financing your invoices is that it can help you grow your management consulting business by ensuring you can offer credit terms to clients.
This solution enables you to take on new clients while minimizing the problems associated with slow payments. If you have concerns about taking on a large project because your clients would pay slowly, invoice financing can usually address those concerns.
How does invoice financing work?
To finance your invoice, the factor purchases the invoice in two installments. The first installment covers about 80% of the gross value and is wired to your bank account as soon as the invoice is received and verified. The second installment, the remaining 20% (less fees), is deposited into your account once your client pays the invoice on their regular schedule. For more information on how transactions are structured, read “What is factoring?”
How do I qualify?
Qualifying for invoice financing is easier than qualifying for most conventional solutions. The most important requirement is to have commercial clients with good credit because their invoices are backing the transaction. Aside from that, your company should bill for delivered services, not have any liens against its invoices, and be well managed.
Get more information
We are a leading factoring company and can provide high advances at low rates. For information, get an online quote or call (877) 300 3258.