A cash flow shortage can be a true nightmare for business owners. Suddenly, you find yourself without money to run your company. Most owners react by trying to control immediate expenses. Often, supplier payments are delayed, which can lead to tighter credit terms from vendors in the future. Other key payments may be delayed as well, or missed entirely. If you let things progress, they quickly become uncontrollable, affecting your ability to run your company. For many companies, this scenario marks the beginning of the end.
But it doesn’t have to
Most working capital shortages happen because the company does not have adequate reserves to handle challenges. Companies operate in a lean environment in which they only have enough reserves to run the company for a couple of weeks. They end up operating from client check to client check, not unlike folks that live from paycheck to paycheck. Because of this cycle, the slightest change in cash flow can lead to problems.
How do you solve this problem?
Often these problems start when a customer delays payments. Most commercial sales are made on net-30 terms, giving the customer up to a month to pay an invoice. It’s not unusual for clients to delay invoice payments when they face their own cash flow problems. And this is where the problems start.
Obviously, these problems would not exist if your clients paid quickly. Most clients have payment terms stipulated in iron-clad contracts that let them pay slowly. But you can still get a quick payment on those invoices, and solve this problem, by financing invoices through factoring. Unlike other financial options, you can implement invoice factoring relatively quickly.
What is invoice factoring?
Invoice factoring is a tool that can provide quick financing to companies with cash flow shortages due to slow-paying clients. It works by financing your invoices from creditworthy commercial clients – giving you immediate working capital and solving your emergency cash flow shortage.
The transaction closes once your customer pays in full. Using invoice factoring accelerates the revenues tied to slow-paying invoices and provides you with most of the benefits that you would get if your clients pay quickly – though they are not required to pay any sooner.
The transactions are simple. You work with a factoring company who intermediates your invoices. You invoice your client. The factoring company advances money to your business, using your invoices as security. And the transaction concludes when your client pays, on their normal schedule.
How quickly can I get invoice factoring?
If all goes well, you can have a facility in place in just a few days. Often, you can get a quote and a proposal the same day. However, it’s best to be cautious and plan for this process to take a week or two. Things will flow faster with your application if you avoid these common problems.
This program is still much faster to implement than other solutions, which can take weeks, or months, to secure. The most important requirement is to have creditworthy commercial clients. As opposed to most bank financing, you don’t need additional collateral. Also, your receivables should be free of liens, and your company should be well run.
How do I benefit?
Invoice factoring has a number of pros (and few cons). The two obvious advantages are that it improves cash flow and it can be deployed quickly. However, the greatest benefit is that you will be able to offer payment terms to clients without having to worry about cash flow. If you need money, you can always finance an invoice, as long as it meets the funding criteria. This solution provides an important competitive advantage to small companies whose growth has been limited due to working capital problems.
Get an instant quote
We can provide you with an instant factoring quote. To speak with a representative, please call (877) 300 3258.