Feeding a Fast Growing Business: Cash Flow Is The Key To Success!
One of the biggest challenges that a fast growing business has is managing cash flow. When a business is in a stage of expansion, it always seems to need more of something. And that more of something almost always requires some sort of money. This is why cash flow is so important. Without the proper capital, a business can’t get what it needs. And if a fast growing business does not manage its capital in an efficient way, it can run out of money and go bankrupt.
There are many different tools that can help you manage your cash flow. One of the best, though, is invoice factoring. This is a way of getting immediate cash for you business, so that you can keep up with demands that are put on it. Some of the common demands on cash flow in a fast growing business include:
• Pay for personnel.
• Leasing or buying premises.
• Overhead costs, including utilities.
• Equipment rental and/or purchase.
• Shipping and/or delivery costs (including fuel costs).
• Collection on customer invoices.
If any of the above occur because of a lack of funding, it can provide serious problems throughout the business. But all of these things require money, and sometimes there just isn’t enough immediate capital to fund everything as it needs to be funded. And sometimes you just can’t get a loan (especially if you already have had a start-up loan).
One way you can fill in the gap between what you have and what you need is to engage in invoice factoring. For many fast growing business operations, invoice factoring is a cash flow tool that can offer the key to success.
Using invoice factoring to manage cash flow
Many fast growing business operations find that they have a lot of customers. This can mean that there are a lot of invoices stacking up. Customers may be slow to pay, or you may have a large number of orders that just shipped and you barely invoiced your customer. In either case, you can turn these pieces of paper with the potential for payment into solid capital that you can use to keep the money flowing into your business.
How invoice factoring works:
You sell your invoices to a financing institution, like Advanced Commercial Capital. The institution, generally called a factor, reviews your invoices and advances you cash, usually the amount of the invoice minus a fee. You have immediate capital, instead of waiting until the invoice is paid to have ready money, and the factoring company collects on the invoice.
You can see how this would help a fast growing business accelerate its cash flow. Instead of putting off important (and possibly vital) purchases or stalling in making payments on leases or equipment rentals, you can take care of necessary business immediately. In many cases, you can decide which invoices to submit for factoring, and you can determine how often you submit them. This is a great help that puts you in better control of your business cash flow. Instead of failing, invoice factoring has helped you get the cash that you need to keep on going. On top of that, you don’t have to keep trying to chase down payment on invoices. You can use your time to more effectively manage your business.
Invoice factoring as equity financing
Invoice factoring can be so attractive because it is equity financing. You already have the promise of payment, so the financing company considers it money that you own, rather than money that you will owe. With traditional (or debt) financing, you take out a loan on potential future earnings. Then you have to pay the money back down the road.
Another advantage invoice factoring has in terms of accelerated cash flow is the approval process. While you may still need to be approved, it is generally easier. You have the proof of expected income in contract form. With a loan, the bank can only project your future income. And in these times, when banks are concerned about lending money – even if your business is rapidly expanding – invoice factoring can make a good alternative to traditional financing.
Managing cash flow can be a tricky thing. And when your business depends on continued payment from customers, it can be devastating if someone is slow. You may not have the cash you need, when you need it. Invoice factoring can alleviate some of the stresses related to this problem. You can receive an advance, and make sure that you have the capital you need to ensure that your fast growing business sustains its success.
Related Article: Invoice Factoring vs. Traditional Financing >>