Operating a business is not as easy as everyone pictures it It requires commitment, determination, indomitable will power, patience, and a lot of luck. And, it is fairly common for small businesses to have cash flow problems.
Many businesses also work on business models that facilitate cash flow problems. For instance, in the trucking business operations, there is a major disparity between the completion of the work versus the duration it takes to receive payments. The inconsistency, in turn, plays an atrocious role in causing cash flow problems. And, since the business isn´t paid uniformly every month, it gets quite difficult for the business to pay its employees, taxes, and operating costs. What´s worst about these bills is the fact that they do not have extended payment options.
So, what can a business do to pay tax obligations?
No one really looks forward to the tax season. And, although it is possible and entirely legal to minimize your tax payments, it is not advisable to skip out on your tax obligations. If you don´t pay your taxes on time, it can result in you paying even higher fees. In extreme cases, you can even face a jail sentencing.
As we stated earlier, it is common for many businesses to be short on cash at a certain time. And, if your business doesn´t have the cash to pay tax obligations, you should consider using invoice factoring to set you free from the financial plight. Basically, factoring allows you to avoid huge tax debts and prevents you from paying late filing penalty fines. Factoring is a perfect solution for businesses that don´t have the liquid cash to pay off immediate bills.
How does factoring work?
Before we start, it is important for you to understand that factoring is not a loan. Invoice factoring is simply a viable and convenient way for you to withdraw cash from the value of your business´ invoices. Factoring agencies basically provide you with the option of selling your invoices for a discounted amount. However, you will need to pay a convenience fee to the factoring agency. The process of factoring usually involves three parties. The factoring agency that purchases the receivables is one of the parties; the business (you) that sells the invoices is the other party. And, the debtor who owes money to the owner of the invoice is the third party.
So, when do you receive the money?
You receive your money almost instantaneously from the factoring agency. However, you don´t receive the full amount in the beginning. You receive a large fraction of the face value of the invoices up front though. And, you are only provided with the remaining amount, as stated in the contracted amount, after the factoring agency recovers and collects the money from the debtor.
What are some of the benefits of factoring?
- Instant access to liquid cash
The process of factoring can give you liquid cash within a day or two on the approved invoices. However, if you have a tax obligation approaching near, it is advisable for you to setup the factoring process a few days ahead as the factoring application process can usually take a week. A week can be considered fast when compared to the time it takes for banks to approve loans.
- The terms are flexible
Unlike previous times, factoring programs are extremely flexible. You are not required to commit to a long-term contract or focus on maximums and minimums. You have the luxury of choosing the invoices you wish to factor.
- Factoring fees are beyond reasonable
Of course, factoring agencies understand that you don´t have plenty of cash to spare. These days, factoring programs provide advances up to 95%. And, the fees can be as low as 1.5%. However, the fees can differ by advance rates, volume of invoices, industry, customer creditworthiness, and sector etc.
- Provides you cash without debt
As we mentioned earlier, factoring is not a loan. Hence, the factoring process doesn´t add debt to your balance sheet. With factoring, you basically won´t have to worry about making monthly loan payments.
- You are in charge
It can get rather annoying to have banks on your back. Fortunately, you don´t need to spend or invest the money you acquire as stated by the factoring agency; you won´t be required to spend the money on equipment or other assets. You can spend the money as you see fit.
- There´s no need to boast of strong financials
In order to obtain a loan from the bank, you need to have great credit and a strong financial track record. However, factoring doesn´t require you to be in an ideal financial position. Factoring agencies pay attention to the creditworthiness of your customers. Therefore, you can still qualify for factoring even if you don´t have a sound financial history.
- Serves as a stress buster
With factoring, you won´t have to rely on anyone to make payment first. Basically, you can pay your employees on time, fulfill your tax obligations, and cover the operational costs without relying on anyone to first make their payments. You will no longer have to worry about being charged with late fees and fines.
- Other benefits
When you sell your invoices to the factoring agency, you will no longer have to stress over collecting the payments and taking care of the paperwork. The factoring agency will take over your responsibilities and greatly improve the turn time on your receivables with professional management. Factoring can help a business meet payroll, maintain an excellent credit rating, pay operational bills, fund growth, and take advantage of early payment discounts. You´d be foolish not to use the benefits provided by factoring agencies.
Carter Funding offers invoice factoring to businesses to improve cash flow.