Cashflow is Vital
Good, healthy cash flow can be vital to the health of your business. You need to get paid for providing your product or service, and you need to get paid in a timely manner. If your customers are taking too long to pay you, there’s a near infinite number of problems your business can encounter.
You may not be able to pay your employees on time, leading to frustration and disgruntlement. You may not be able to pay material providers to continue producing your products. You may not be able to make necessary investments to grow your business. You may not be able to pay the rent payments needed to run your business.
Good cash flow will allow you to do all these things. Simply put, good cash flow will allow you to run your business smoothly.
If your business relies on getting paid through invoices, invoice factoring is a strong option to consider to improve your cash flow and make your business run more smoothly.
What is Invoice Factoring
Invoice factoring is the practice of selling your invoices to a third party, who will then immediately give you a portion of the invoice, normally between 70 and 95 percent, and then pursue your client to collect the balance of the invoice. When they collect, they will then pay you the remainder of the invoice balance, and subtract a small fee.
Invoicing companies exist to give you access to the funds you invoice for immediately. Having the lump sum from the invoice immediately can allow your company to pay its needed expenses and operate with greater flexibility. Some of the industry leaders will be able to give you the funds immediately, 24/7, whenever you send an invoice.
The Best Invoice Factoring Companies
Deciding what invoicing company to work with is a big decision. The companies vary in the percentage of the invoice they provide up front and what fee they take, as well as when they can deliver payment. If you want a comprehensive breakdown of the best companies in the industry, click here
Different invoice factoring companies specialize in different sectors. Some companies offer their services across industries, while some are specialized. Some companies even offer specialized industry specific benefits, such as fuel rewards programs for trucking companies. If you work in an industry like trucking, it’s worthwhile to think about which companies work specifically with your industry.
The Difference Between Recourse and Non-Recourse Funding
One of the most important things to think about when deciding which factoring company to work with is determining if they offer resource or non-recourse factoring. What’s the difference, you might ask?
Imagine the situation where you give an invoice of yours to your factoring company, collect the lump sum payment, and go about running your business. The next week, the company which you invoiced declares bankruptcy, and cannot pay the invoice. What happens next? Who is responsible for that debt?
If your factoring company is a recourse invoice factoring company, you will be responsible for the debt. Depending on the terms of your agreement, you will either have to pay back the lump sum or provide them with another invoice of equal value as collateral. However, if your factoring company is non-recourse, then you will not be responsible. You will get to keep the lump sum, and the rest of the invoice will be paid to you whenever the factoring company is able to track down the debt.
Before working with any factoring company, it’s critical that you carefully read their agreement. To learn more about the finer details and advantages of recourse and non-recourse plans, click here.
Utilize High Interest Savings Accounts
How you store funds for your business can make a big difference in terms of cash flow and liquidity. Some banks specialize in working with businesses, offering a wide variety of benefits depending on your specific company. Some banks are better equipped to deal with smaller or larger businesses, or businesses in different sectors.
Benefits of Business Banking
-Improve financial flexibility
-Improve cash flow
-Increase financial security
The business banking industry has many players, each with their own strengths and weaknesses. Some are better equipped to work with large corporations, while others small businesses. It’s important to understand the business banking industry to find the best fit for your business.
Offer Incentives for Up Front Payment
If you can offer discounts or some other incentive for up front payment, consider it. Increasing the amount of payment upfront is an amazing solution to cashflow problems, and can make sense in a lot of industries.
If this is commonplace in your industry, or you think would be reasonable with your customer base, consider implementing it. If there is an exciting non financial incentive you can offer, such as some sort of perk, which is easy for your business to deliver, consider implementing it. Up front payment is the best cash flow issue mitigator, and anything to increase it is worth thinking about.
About the Author
Blake Bobit has been an entrepreneur and business owner for over 25 years. He is the CEO and founder of Solution Scout, which he made to provide the most helpful answers to questions about business solutions. Blake provides strategic advisory services to businesses in many industries nationwide and is passionate about helping others reach new levels of success.