Managing cash flow can be a difficult task for a small but growing business. You need to have money on hand for a variety of reasons: to replenish your inventory, compensate your employees and take care of the rent, utility bills and other expenses that must be paid every month. Extending credit to your customers is an excellent way to encourage them to do business with you, but how are you going to survive if they are paying you 30, 60 or even 90 days after you provide them with the services or products they need?
If cash flow is an issue and you’re unwilling or unable to incur additional debt, factoring — selling some of your receivables — might be a reasonable alternative. Under this option, a factoring company purchases your invoices and collects them when they are due, usually paying you between 70% and 90% of the invoice amount. You get the rest, minus a fee, once your customers pay their bills.
Here are some advantages of factoring and the increased cash flow that comes along with it:
Your business will be more flexible.
You might encounter a chance to purchase items you need in bulk at fire sale prices. If you don’t have enough cash on hand, that opportunity could easily pass you by. Or you might need cash to be able to take on a large and potentially profitable project. For instance, your business might have a shot at a $25,000 job, but you need $10,000 upfront for supplies and payroll to make it work. Selling some of your invoices could provide you with the money you need to take advantage of this opportunity without going into debt.
You can help your credit rating.
You can put together a positive credit history if your factoring provider reports your business relationship to a credit agency. Not all factoring companies do this, so it probably would be a good idea to ask about that before you sell your invoices.
You’ll have a better chance of surviving a downturn if business drops off.
Despite your efforts, if you own a business, you’re going to encounter good times and bad times. Most businesses go through cycles, and maybe your entire industry will lose steam through no fault of your own. Most banks and finance companies are reluctant to lend money to businesses that aren’t doing well at the time. In fact, they might even cut off your credit. Factoring companies, on the other hand, are more concerned with the creditworthiness of your customers.
You can tap the resources offered by a factoring company.
An experienced factoring company can help you make informed decisions about extending credit to potential customers and work with you to maintain records, manage billing and limit financial risk. Factoring companies have access to resources that usually are unavailable to small businesses.
Are you looking for ways to maximize your company’s cash flow? Factoring just might be your best option. To learn more about how factoring can help you, visit FactoringServicesUnlimited.com or call Factoring Services Unlimited at 361-444-5654.