Small and new businesses can take advantage of growth opportunities and the need for improved customer services to succeed in their niche markets. However, sometimes this isn’t possible if your business is experiencing more cash outflow than inflow, just when an opportunity for growth knocks at your door.
Many businesses have experienced such scenarios. Although you have invoices indicating pending payments that will come in at a certain date, you’re not able to use them to purchase the new software your firm needs to improve its productivity. Unlike small businesses, large corporations have the cash and credit they need to make adjustments to stay ahead of business.
Your business can experience more cash inflow over prolonged periods. Within shorter periods, your firm can go through financial difficulties, resulting from more expenses than your cash inflows. In such scenarios, you need quick solutions to your financial problems. Your company needs resources that can eliminate these gaps in your business cash flows.
When many small businesses go through such a financial challenge, they opt for accounts receivable financing to keep the firm running. Short-term negative cash flow can impede your company from exploiting growth opportunities. This is true even if your firm has a positive long-term cash flow.
Accounts receivable funding supports businesses in their efforts to better manage cash flow. It’s important that you understand how invoice factoring can be the solution your business needs to overcome the effects of lacking cash. Here are the top 5 ways of realizing the potential of invoice funding for your small business.
Top 5 Benefits of Accounts Receivable Financing to Your Small Business
Your small business can benefit a great deal from invoice funding, with benefits ranging from fast access to a working capital to flexible business finances. Here are the benefits to look forward to for your small business:
1. Improving Your Firm’s Cash Flow
There are cons and pros of having big clients as a small business. When clients don’t pay, your cash flow tightens, suddenly easing when an invoice payment is made. Paying your expenses steeply drops your cash flow, and when another payment comes in, your cash flow improves.
As a small B2B company, you need small business financing to smoothen out these cash flow bumps. The essence of this kind of financing lies in the fact that customers intentionally wait to make payments, knowing that invoices are due many days later (30, 60 or even 90 days). Having to wait for such long periods to receive payments means that you can fall short of the funds needed to upgrade software or even pay your workers.
Make your cash flow more predictable by making use of accounts receivable funding; you get to engage in effective planning of your finances.
2. Loosening Your Tight Small Business Budget
This type of small business financing allows you to sell your outstanding invoices to a factor, a firm (also known as invoice factoring company) that buys invoices at a discount. The firm pays you 80% to 90% advance of the invoice value. Once customers make invoice payments to the factor, you receive the balance less fees.
This advance gives your business the breathing room it needs in the operating budget when your cash flow is impaired by delayed payments.
3. Improving the Flexibility of Your Firm’s Finances
If your business is dependent on customer demand, things might worsen during low season. For instance, if your business has a strong seasonal element with many customers over the festive season (a time when you realize increased cash flow), your cash flow slows down during off peak seasons.
Invoice factoring can come in handy during the off peak seasons, providing your business with the cash needed to pay your employees. It improves the flexibility of your firm’s finances, readying it for seasonal variations.
4. Offering Fast Access to Business Working Capital
Lack of cash can prevent your company from seizing growth opportunities as they rise. However, with accounts receivable financing, your business has fast access to a working capital.
Within just a day or two, you can receive your advance payment (a percentage of the invoice value) to make the most of an opportunity bound to improve your business productivity. It could be equipment or furniture suddenly on offer or a great deal on a service or product.
5. Providing Employees Improved Security
Low cash flow can lead to your employees not receiving payments as scheduled. This can greatly impact employee motivation and morale to work for your farm, leading to reduced productivity or even loss of good workers.
With improved cash flow, your workers are guaranteed payments and security for the same, leading to reduced turnover and improved productivity. Instead of worrying about negative cash flow, invoice factoring allows you to focus on important business processes, knowing that you can easily access funds through accounts receivable funding.
Your business can experience negative cash flow in the short-term, preventing you from running your company smoothly. Use your outstanding invoices to secure a cash advance to support your business operations. This saves you from being in debt by taking a business loan to salvage your financial crisis.
Pick the right factoring company that will provide you with the cash advance you need without the headache of hidden fees and penalties. Go for a firm that offers at least 80% advance payment of the invoice value. Do your research beforehand and make comparisons to settle on the best financing company for your business.
Read the contract before signing it to know what you’re binding your business to. Accounts receivable financing allows you to meet your payroll obligations, take advantage of opportunities that arise unexpectedly, and pay your business expenses without being in debt or worrying about your lack of finances. This explains the essence of invoice factoring to modern small businesses like yours.
Contact us today for your small business financing needs.