Most commercial sales are done using trade credit. This means that the seller is expected to provide the buyer up to 60 days to pay an invoice. Most companies provide payment terms to their customers because clients demand it. You have little choice. Often, these provisions are inserted into contracts and you have to comply with them if you want to close the sale. This can create a problem for small companies that are not well capitalized and need to get paid sooner.
Most companies need money sooner
Small businesses have a number of ongoing expenses and have to pay their bills quickly. Few companies have any reserves since they operate on very tight cash flows. There is rent, suppliers and payroll that have to be paid on a regular schedule. All these expenses add up can deplete your resources. Ultimately, they can put your company in a challenging financial position.
These problems can hit a company when they need money the most – when they are growing quickly.
Can you get faster payments?
One way to solve this problem is to ask your clients for faster payments. You can may be able to convince them to pay sooner if you offer them a discount as an incentive. Offering a 2% discount in exchange for a payment in 10 days is a common practice.
Asking for faster payments will often improve your cash flow. However, it will not produce reliable results because your customers still get to chose if and when to pay.
Is bank financing the solution?
Another possible way to solve this problem is to get bank financing, such as a line of credit. As a matter of fact, a line of credit can be an ideal solution to this problem. You can use it to pay for expenses and then pay it back as soon as your customers pay their invoices.
The problem with this strategy is that getting a line of credit is very difficult. Banks only provide financing to companies that have plenty of assets that can be used as collateral, perfect financial statements and a multi-year track record of growth. Few small companies can meet these requirements.
A better solution – finance your invoices
A better solution, especially for small business owners, is to finance their invoices. This can improve your cash flow by accelerating the revenues that are locked in slow paying invoices. More importantly, you can use this tool to offer trade credit to your clients. Now you can finance your invoices any time you need funds.
How does a transaction work?
Most factoring transactions are structured by financing your invoice in two instalments. The first instalment is called the advance and covers about 80% of your invoice. The advance is sent to your company as soon as the products/services are delivered and the invoice is verified. The remaining 20%, less the factoring fee, is rebated as soon as your customer pays their invoice in full. You can get more information by reading “How does factoring work?”
Can I qualify?
Qualifying to finance your receivables is relatively easy, especially when compared to conventional financing products. It is very important to have credit worthy commercial clients, because their credit secures the transaction. Also, your company should not have encumbrances on its invoices, should be free of major problems and should be operated by experienced individuals.
How quickly can I get it?
Getting factoring is a relatively quick process. You can get a proposal within a business day of submitting an application. And if approved, the first funding can happen within 5 to 10 business days. Subsequent transactions can be done in as little as a business day.
This makes it an ideal solution for companies that have unexpected cash flow problems an need immediate funding.
Get more information
Are you looking for a factoring quote? We are a leading Canadian factoring company and can provide you with high advances at low rates. For information, get an online quote or call (877) 300 3258.