Friday, 18 December 2009 00:00
Managing the cash flow of a growing business is a constant juggle for company managers. On the revenue side, most of your clients want to pay their invoices on 30 to 60 days. On the expense side, you have to deal with many immediate expenses that have different payment timeframes. Most pressingly, payroll, which tends to be either monthly, biweekly or weekly.
One way to improve your cash flow is to demand that your suppliers give you the same terms you offer your clients. In other words, if you give 45 days of payment terms to your clients, you want your suppliers to give you 45 or more days. This is easier said than done. Unless you own a large company or have impeccable business credit, most of your suppliers will demand quick payment.
One of the easiest ways to get into a cash flow squeeze is to have clients that pay in 60 days but have expenses that are immediate. Your only solution is to cover the gap with your company's resources until invoices get paid. Unless you are careful managing your sales, revenues and expenditures you are bound to get into trouble and run out of resources.
One way to solve this problem is to use business financing. Although a small business loan is seen as a solution by many, they have their own challenges. They are hard to get, require extensive application processes and more importantly, require that the company and its owners have impeccable credit. An alternative to a conventional business loan is to use invoice financing.
Invoice financing eliminates the 30 to 60 days invoice payment wait, helping companies gain a more stable financial footing. It's provides the funds you need to meet you immediate expenses, enabling you to tackle new opportunities.
One critical difference between invoice financing and other products is that invoice financing companies look at the credit worthiness of the company paying the invoice as their most important source of collateral. This feature makes invoice financing a viable alternative to small companies with thin or no credit, but a strong list of clients.
Most invoice financing transactions are arranges as an invoice purchases, where the factoring company finances/purchases the invoice in two installments. The first payment, usually 80% of the invoice, is made as soon as you submit the invoice to your customer. The remaining 20% ,less the discount, is advanced as soon as your client actually pays for the invoice.