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How You Can Improve Cash Flow with Flexible Financing

Are you or your employees growing frustrated with the administrative part of your jobs in chasing down late payments from customers? How much more working capital would your business get if it stopped spending so much time tracking down customers to pay for services rendered or products delivered? What would you do with the cash if you have it sooner?

Get the needed working capital with factoring

With factoring, you don’t borrow any money or get a line of credit. Instead, you finance what you’ve already earned. This process gets you the money faster and allows you to spend more time growing your business. Let’s say you have $150k in unpaid invoices, your accounts receivables.

Think about the time you spend working to get these invoices paid. That’s lost income.

How would having the money now rather than 30 or 60 days late affect your business?

Here are five things that happen when you opt for accounts receivable financing:

  1. Available cash flow: Grow your business, buy equipment, add another product or service, take on my clients, do anything you have wanted to do to build a better business.
  2. Instant cash: Helps cut overhead.
  3. Pay vendors: Paying your vendor bills on time can lead to better relationships and potential discounts.
  4. Buy supplies, equipment and buildings: Some businesses find they can’t stock up on supplies or hire more people, which delays finishing jobs for clients. With cash flow from flexible funding, you can increase your supplies and team to help you keep up with demand.
  5. Focus on your business: Your core business is what you’re passionate about and prompted you to build the business in the first place. Freeing yourself from chasing down unpaid invoices gives you more freedom to do what you’re good at and what you love.

Not all financial services company offer flexible funding through factoring. Some require you submit all of your invoices to them. And only a few take on the risks associated with unpaid invoices. In exchange for the risk and getting paid faster, you’ll receive less than $150k for the money you’re owed. Would you rather have a little less than $150k now or the full $150k 60 days late?

Don’t forget, you’ll be spending more time on income-generating work once the factor takes on the responsibility for chasing down payments. Thus, you get your working capital faster and grow your business. The cash you get from factoring can be re-invested in your business to help you achieve your goals quickly.

You can choose how much and how long you want to do flexible funding. It can be set up to work until you balance your cash flow to ensure you have the needed working capital.

What flexible funding is not

Some websites and financial services companies out there take advantage of small businesses with confusing fees and frequent cash withdrawals. Kickstarter-type websites sometimes refer to their fundraising programs as flexible funding.

These services typically refund everyone’s money if the project doesn’t reach its fundraising goal. No harm, no foul. Well, except for the time invested in setting up the project. Some crowdsourcing sites offer a flexible funding option where they’ll pay all pledged funds regardless if the project reaches its fundraising goal.

If a company doesn’t meet its fundraising goal, it won’t be able to complete the project. In signing up for crowdfunding, a company picked a minimum amount it needed to raise to make the project happen. If it doesn’t make it, then it can’t make do with the money raised. It’s better to refund it than to fail to deliver on a promise.

What’s more is that the company may hurt other project’s chances of getting funded. One bad experience is all it takes for a donor to stop funding programs. Between these two things, this company or its founder’s name could be mud.

Beware of MCAs disguised as business cash advance or small business loan

Flexible funding is also not merchant cash advance (MCA) funding. What’s scary is that many MCAs don’t advertise themselves as MCAs. They call themselves micro lenders, small business lenders or provider of working capital who provide flexible funding to small businesses.

Searching for one of the lenders for complaints, brings up many posts from frustrated users. One customer said that you won’t get the full story even if you read everything on the MCA’s website. If you look up these companies on Better Business Bureau, you’ll see good grades.

However, these financial services companies withdraw money from a small business bank account, or credit and debit card sales every day with high interest fees.

For example, one customer took out $30K from an MCA with the expectation she’d pay it back within six months. The loan had an effective rate of around 110 percent when including interest, a $2,520 guarantee fee, a $750 origination fee, a $500 lender platform fee and a $387 servicing fee. The owner filed for bankruptcy protection within six weeks.

These fees are typical of an MCA. Go on and take a look out there for “[MCA company name] complaints.” You’ll notice a lot of buyer’s remorse as you read stories from small business owners who thought these companies would help them get the working capital they needed to grow business.

Protect yourself — Ask questions

A small business owner can do all the right things and still end up in a bad financing situation. How can you prevent your business from falling into one of these traps? Ask these questions when talking to a financial services company.

  • What does it take to qualify for funding from you?
  • Do your clients have a credit line amount? If so, how do you determine what it is?
  • What restrictions and/or costs do you have if I end a financing agreement with you?
  • If I decide to leave the relationship after three months, what would it cost me?
  • May I get references to contact about the quality of service your firm provides? (Also look for complaints online too as they’ll going to give you a list of happy customers.)
  • Do you require personal guaranty from the owners of my company?
  • How do you send money? What are the charges for expedited services like wire transfers?
  • How do you withdraw money I owe you? How often? How long?
  • How do you determine your fees? Are they a flat fee, or are they proportional to time? Are there any line fees, guaranty fees, origination fees, platform fees, maintenance fees, monthly fees or any other fees?

Share your small business loan or flexible financing stories in comments. Small business owners will appreciate your experience.

Photo credit: ColinBroug

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