Cash Flow Management & Growing Your Business

Cash Flow Management

Is there a process companies can use that helps to improve cash flow? Well, when the economy is strong, and customers have more working business capital, companies are able to use prompt payment incentives and discounts with their customer base to improve their cash position. Unfortunately, with the world mired in a deep recession, these practices no longer produce the desired results. So, what else is there? To answer this question involves looking at the benefits of accounts receivables factoring. What is receivables factoring and how can it help businesses better manage cash flow? More importantly, why has it become such a dominant financial player for today’s businesses looking to different ways to finance their growth?

Every company understands that to grow their business requires securing a constant and repeatable source of affordable business credit. Unfortunately, as the economic situation has worsened, more and more businesses are faced with the constant threat posed by customers taking longer and longer to pay their invoices. These late payments reverberate throughout the economy and force conventional lending institutions like banks and credit unions to raise interest rates. This raises costs and makes business credit no longer affordable. However, receivables factoring is different. The decision to advance money isn’t based on the company’s credit rating. Nor is it dependant upon the company’s financial standing. Instead, the decision to advance the business funds is based entirely on whether the company’s customer can pay their invoices. That’s right! Receivables factoring’s success depends upon the age of the invoice and the likelihood that the company’s customer can pay that invoice. Therefore, good paying customers allow the company to tap into the liquidity of their existing assets. The financing company advances funds, collects from the customer and reimburses the company the difference. In the meantime, the company secures an affordable source of business capital, improves their cash flow position and is able to fund their daily operating expenses.

Receivables factoring allows companies to do away with business financing as a going concern. It’s easy-to-use, simple and an impactful form of business financing for today’s businesses. When it comes to looking for alternative financing options, receivables factoring may just be the source of business capital that companies need to enact their strategic plans for growth.

Commercial Hard Money Loans & Alternatives

Commercial Loan

With the tightening of business credit, companies are struggling to make ends meet amid a backdrop of uncertainty. Companies are taking longer to pay invoices and the effects are reverberating throughout the global economy. Banks raise interest rates and businesses are left to deal with the consequences. However, there are credit alternatives that allow companies to assume a more hands-on approach to financing their business. They include asset-based lending practices and the most common ABL financing vehicles are purchase order financing, and accounts receivables factoring. Both options empower businesses to take charge of their capital requirements and are a much more viable financing option when compared to the exorbitant interest rates on business credit lines and bank loans.

Purchase Order Financing

The principle behind purchase order financing is to provide businesses with the working capital to purchase the raw materials and parts to complete existing customer purchase orders. Companies can use the value of their order as a form of collateral in order to secure the working capital so vital to their business needs. Financing companies will essentially purchase the order itself, provide the company with the necessary funds, and then proceed to collect on the invoice. The benefit is access to immediate funds and the flexibility of better cash flow management. In addition, purchase order financing allows companies to pursue any business opportunity, regardless of its scope.

Accounts Receivable Factoring

Receivables factoring includes taking an open customer invoice and using it to secure financing. In this case, the decision to lend money is based on the age of the invoice and the credit worthiness of the customer. There are no credit checks on the company and no review of any financial statements. The onus is on the customer’s ability to pay the invoice. Companies get immediate working capital, while the financing company collects on the invoice. In a sense, receivables factoring can be viewed as outsourcing accounts receivable collection. Once the customer pays the full amount, the company is reimbursed the difference and the financing company charges a small fee.

Today’s businesses must take charge of their finances. Banks and conventional lending methods are tied into the ups and downs of credit markets and the swings in business cycles. To avert a sudden lack of credit, companies must be proactive in securing their own financing needs.

Accounts Receivable Financing & Your Business

Accounts Receivable Financing

Cash flow has always been a concern for businesses. Unfortunately, there just doesn’t seem to be a solution, or is there? Well, there is one remedy companies can call upon. It’s a practice that has become extremely popular amongst those businesses looking to take charge of their finances. What is it you ask? It is accounts receivable financing and it’s easily the most impactful form of business financing available today. Simply put, receivable financing provides companies with immediate access to working capital. Companies can then use this capital to lower their costs by negotiating prompt payment discounts from vendors, use the money to cover their day to day operating expenses, or simply use the capital to enact strategic plans for growth. The point is, accounts receivable financing allows companies to do what they want, when they want. So, how does it work?

A company’s unpaid customer invoices are assets. When customers take too long to pay off invoices, the value of these invoices, or assets, is reduced. This comes from the daily cost of money and the high costs of business credit. The longer it takes customers to pay their invoices, the higher these costs and subsequently, the lower the gross profit is per sale. With receivables financing, companies sell their customer’s unpaid invoice to a factoring company, who then provides the company with credit based of the invoice’s value and the customer’s ability to pay. In return, the financing company collects on the invoice directly from the customer. Once the invoice is paid in full, the financing company reimburses the company the difference and charges a small fee for their services, usually around 3%.

Accounts receivable financing puts the power of financing in the hands of businesses by giving them the working capital they so desperately need to meet their day to day operating expenses. In essence, companies can access this capital earlier than they would if they were to wait for customers to pay their invoices. Early payment means companies can better manage the inconsistent cash flow of business cycles, reduce their overall cost of money and use capital to grow their business. However, the best part of this financing method is that it doesn’t rely upon the company’s credit worthiness, but instead relies upon the customer’s ability to pay.

Accounts Receivable Financing & Factoring Companies

Accounts receivable and factoring companies

In order to succeed in business you must have access to affordable credit. This requires a financing solution that empowers companies to be more proactive instead of reactive. Accounts receivable financing is one powerful financing solution that puts the power of business financing in the hands of companies and business owners. Given its popularity amongst today’s businesses, what can companies unfamiliar with this financing option expect? More importantly, what is accounts receivable financing, and why do a number of companies consider it to be their financing method of choice?

Accounts receivable factoring works because it allows companies to use the liquidity within their existing assets to finance their business. These assets are a company’s receivables, or otherwise referred to as its account debtors’ unpaid invoices. Factoring companies advance capital based on the invoice’s value, its age and the account debtors’ payment history. Earlier invoices garner higher credit as does an account debtor with a strong credit history. Companies may have to divulge financial statements, go through a credit check or on occasion, be asked to provide collateral.  An emphasis is not put on the previously mentioned items but on the account debtor’s ability to pay the invoice.This makes receivables factoring incredibly flexible and a financing option almost all companies can use.

The global recession has made it extremely difficult for account debtor’s to pay on time. These late account debtor payments force business to be late themselves and the resulting effect leads to higher interest rates on bank loans and credit lines. In the end it leads to further late payments. However, factoring alleviates the concern of late payments by advancing the company funds based on their receivables age and value. Companies use their receivables as credit and get access to working capital sooner. The factoring company then collects from the company’s account debtor, charges the company a nominal fee and reimburses the company the difference between what was originally provided, and what was collected on the invoice.

Businesses today need flexible financing options. They simply can’t be inhibited by waiting on their account debtors to pay their invoices. For a practice that goes back well over 4000 years, accounts receivable factoring has withstood the test of time because it is a financing solution that businesses find easy-to-use and provides a solution to working capital.

Accounts Receivable and Purchase Order Financing

Accounts receivable and purchase order financing

Looking for alternative business financing solutions but unsure of where to look? Not convinced there are other options worth pursuing? Granted, banks and credit unions have been the more conventional lenders of businesses but there are other options and it’s imperative that companies be well versed in these alternatives. So what are these other options? They are accounts receivable factoring and purchase order financing and both provide companies with the means to take charge of their business financing needs in ways most conventional lending sources can’t. In fact, both have quickly established themselves as the preferred method of business financing for a great number of businesses.

Accounts receivable factoring involves selling the company’s receivables to a financing company. These unpaid customer invoices have a value and the liquidity of these assets can be used to finance a company’s daily operating expenses, improve its cash flow or enact its longstanding plans for growth. Companies essentially sell these receivables to a finance company. The initial payout is typically 80% of the invoice’s value. Once the account debtor pays their invoice, the financing company reimburses the company the difference between the initial upfront payment and what was collected from the account debtor. In terms of purchase order financing, companies are able to use new purchase orders, and contractual agreements, in order to secure the financing they need to purchase raw materials and parts to fulfill the order. Once the order is shipped and invoiced, the financing company then proceeds to collect on that invoice directly from the account debtor. In a sense, both of these financing options can be viewed as outsourcing a company’s receivables collection.

Both of these financing solutions help companies to better manage cash flow and reduce the unnecessary costs associated with financing their customer’s business. Purchase order financing allows companies to pursue all business opportunities, regardless of scope or size. It provides them with the peace of mind they need to concentrate on what they do best. The end result is that companies can benefit from two powerful financing options that can improve their cash position and help them better manage their business.

Small Business Financing Options

Finding the right financing for your small business does not have to be a chore nor does it have to be overwhelming. After your business plan is in place make sure your goals match what is set out in your business plan and that there are realistic projections. When that is done, it is time to think about what financing strategy would work for you.

business-financing-solutionsTraditional financing may be the first thing people may consider, however, if you do not have the liquidity or cash flow, there are options and alternate financing. Angel investors may not be easy to find, but they do exist and are easy to work with, they have business smarts and are typically patient. Strategic investors may make it easy to get the funding you need, but because of their proximity to manufacturers or marketing strategists within the industry, they ultimately become more self-serving than supportive of your business goals.

It may be surprising, but many times friends and family can be very supportive of business ventures, and may view the opportunity of investing in your business as a way of keeping it in the family. Keep in mind, though, that whatever money is available is typically a one-time offer, so good planning is essential.

Invoice factoring is an excellent alternative as a small business financing option that is hassle free and would give you the much needed working capital necessary to grow your business putting it back on solid ground. Your accounts receivable can be converted to cash and customized to suite your individual needs. There are many companies that stand ready to assist you and to help you succeed and achieve your goals. Asset based lines of credit, accounts receivable factoring, and purchase order financing are just a few alternate programs that these commercial companies have. Well trained professionals have the expertise to help with the application process, take the time to listen, and answer your questions.

Commercial finance companies are equipped to work with small start-up businesses as well as large enterprises with million dollars in sales. It is important to research your options, ask questions, as there is no time like the present to get a quick, professional solution that helps you reach your long term goals.

Purchase Order Financing For Small Businesses

purchase-order-financing-companySmall business owners know that having issues with cash flow, while trying to fulfill existing customer orders, is never an easy endeavor. The customer is impressed and wants product, but the small business lacks the funds to not only purchase the raw materials, but to pay for the work needed to complete the customer’s order. Because of their uneven cash flow the small business is left with a large customer order they can’t even start! Is there a solution to such a problem? In fact, there is. It comes in the form of purchase order financing. So, what is purchase order financing, how does it help small businesses with financing.

Purchase order financing occurs when a financing company extends working capital to small businesses, allowing them to purchase the raw materials and parts needed to fulfill a given customer order. Once the order is completed and shipped, the financing company is then reimbursed and the small business is then charged a fee for the financing company’s services. Purchase order financing is a variation of receivables factoring. However, instead of the financing company allowing the company to draw upon the receivables value, the financing company provides up-front cash to the small business based on the value of their customer’s purchase order. This allows the small business to fulfill the customer’s order while freeing up cash reserves.

In a number of cases, purchase order financing is the single best financing option when compared to other conventional lending methods. Given the current state of the economy and tightening of global credit markets, a number of small businesses have had their credit lines slashed. In many cases, these businesses have excellent bottom lines and are in good financial standing. Purchase order financing not only allows small businesses to finance their existing purchase order, it also provides them with immediate cash. This allows the small business to benefit from prompt payment initiatives and discounts with their own vendors and creditors by paying them faster for those aforementioned parts and materials. This is a much better situation for the small business. Otherwise, it would be late in paying its vendors and creditors because of having to finance their own customer’s receivables for 30 days and beyond. This would negatively affect their credit rating.