Are you working harder than ever, but still worried about working capital for your small business? If yes, you’re probably spending a lot of time trying to track down payments. It’s a real headache to contact your clients who haven’t paid their invoices.
Anyone who runs a small business understands the need for recurring cash flow. It’s the life force of a business.
“One of the most important lessons with respect to managing cash flow is this: The faster you collect from your customers, the easier it will be to manage your cash flow,” writes David Finkel in “The Single Most Important Metric to Measure to Improve Your Cash Flow” from Inc.
And with number of banks declining by 3.5 percent from 2010, small business owners have fewer options. Furthermore, small business lending has yet to return lending levels from before the recession. Banks tend to avoid working with small businesses because their loan requests take too much time for little or no return. It’s just not profitable.
But you need the money now. You have bills and employees to pay.
Has any of these happened to you?
- You can’t find a bank that will give you a business loan.
- You’re looking for another option because you don’t want new debt.
- You can’t get a loan because you haven’t paid off your line of credit.
- You don’t have a business line of credit, but you need working capital now.
- Your bank has called in your loan causing you to panic.
- Your bank won’t increase your line of credit.
What other options do you have? You may have heard about merchant cash advance. Pass on that. It could put you in steep debt.
You have another option that can be your Plan B. Your parachute. That option is invoice financing. You may have heard it called factoring or accounts receivable financing. You quickly get the working capital you need by getting paid for your accounts receivable.
9 reasons to do factoring for your small business
Financing from accounts receivable gives you a way to turn your invoices into instant cash. There’s no bugging clients. No awkward phone calls to collect payment. No worries about when you’ll get paid. The factor pays you and takes care of the rest. What’s better than that?
Here are nine more reasons you want factoring, or invoice financing.
1. Get your money fast
If you have experienced the frustration of applying for bank loans or lines of credit — a process that can take weeks — you will be pleasantly surprised by how fast you get the money. Because of the minimal amount of paperwork, you can get signed up within three business days. Once the relationship is in place, you can access cash from your outstanding receivables very quickly. Money is usually forwarded the same day you submit the invoice.
2. Gain zero new debt
This is one of the most popular reasons business owners choose invoice financing. The funds issued to your company is not a loan. It is not debt. It’s your money … you’re just getting it earlier than you normally would. But there’s no additional debt liability added to your business balance sheet.
3. Access flexible, ongoing cash
Financing your invoices helps your company meet almost any of its financial obligations. The additional working capital will assist you with purchasing inventory, products, and materials from your vendors. It takes away the stress of making payroll. If you take advantage of invoice financing, your customers will no longer control your cash flow. You will have 100 percent certainty of when money flows into your business.
4. Pay lower fees
An arrangement to finance invoices is similar to getting paid COD. It is more attractive than the alternative of a 60- or 90-day credit extension to a customer that many net 30 sales tend to become. The costs of invoice financing can be minimal when compared to other options like traditional bank loans, credit lines, liquidating assets to make payments, or merchant cash advance.
5. Meet growing demand for your business
Invoice financing is the only source of financing that will grow with your business. Unlike a traditional bank, there are no fixed lines of credit with invoice financing. Nor do you have to come back and re-qualify. As your receivables grow, so does the availability of working capital. This allows you to continually be in a position to meet increasing demands for your products and services.
6. Boost revenues
The availability of additional working capital will change the way you go after new business. You will no longer feel like you are pressing on the gas and brake pedals at the same time. Your company can take on new contracts and jobs without the worry and stress of wondering where the money is going to come from.
You can also increase sales by offering more attractive payment terms to customers. Larger customers often means a longer waiting time before you get paid on charged sales. However, invoice financing gives you more control and greater access to your cash.
7. Focus on the things you want
Invoice financing provides the peace of mind that you will always have the money to pay debts and obligations. Instead of wasting time worrying about cash flow, business owners are able to focus their attention on customer service and growing sales.
8. Add back office support
Factors — the ones financing your invoices — take care of all the things you don’t like to do: chasing payments, doing client credit checks, handling billing, and contacting clients about invoices. These activities stress out many business owners. They didn’t go into business for this. With the factor managing these activities, you can shift the time you used to spend on doing these toward revenue generating activities.
9. Take control of your invoices
You may have a couple of clients who do an excellent job paying you. For these clients, you might prefer to stick with your invoice process. It’s up to you whether you finance one, some, or all of your invoices. Or make the decision as you create each invoice. That’s why factoring is flexible financing.
What your business will look like after invoice financing
Just imagine all you’ll be able to accomplish when you opt for invoice financing:
- Accept new opportunities.
- Hire more employees.
- Have well-managed payroll.
- Buy more inventory.
- Invest in training.
Stop passing up opportunities because you don’t have enough cash or resources to follow through. You can recover the time you waste in chasing payments. Use that reclaimed time on revenue-producing tasks. With the flexibility of invoice financing, you’ll finally have the working capital to grow your business. And best of all, no new debt.
Image credit: NASA’s Marshall Space Flight Center