Invoice factoring and many other alternative financing options have historically been looked down upon by traditional financial institutions. This has often caused business owners to be wary of such funding options and overlook how beneficial they can be. This is unfortunate, as invoice factoring can be a great source of funding for B2B businesses to cover short term gaps in working capital. In order to see the benefits, it’s important to understand how invoice factoring works and when utilizing it can be beneficial.
When explaining invoice factoring, it is best to first establish that it isn’t a loan. It is an advance on money already owed to your business. In short, outstanding invoices are sold to a factoring company. These are not past due invoices, just invoices that simply haven’t been paid yet. The invoices are sold at a discounted rate. The business typically receives 70 – 90% of the invoice’s face value, providing immediate working capital. When the invoice is paid, payment goes directly to the factoring provider and they send the business the balance minus a small factoring fee, typically 2 – 15% if the invoice’s face value.
Because invoice factoring isn’t a loan, it can be used to get an immediate influx of working capital without taking on any additional debt. Although the interest rate on a traditional business loan can be less than the factoring fee, factoring can often be a better option in the long run. Applying for and receiving a loan can take weeks or even months and approval rates are low. Factoring approval is based on your customer’s creditworthiness and normally takes just a few days. Once approved, funding is typically received in 24 to 48 hours.
In addition to getting the funds you need quickly, you can use them for whatever business expenses you want. There are no covenants, as is often the case with a traditional business loan. Factoring allows you to remain in charge of your business without having to comply with a lender’s guidelines or provide them with monthly financial reports.
As previously mentioned, invoice factoring is a funding option specifically for B2B businesses. There are various situations where factoring may be the best option.
Accounts with 30 day or more payment terms. It isn’t unusual for your customer to wait until the due date to make payment. While this can help them maintain a strong cash flow, it doesn’t help yours. When your cash flow needs a boost before payment is due, factoring can make that happen.
A project with an extended or delayed payment. With an extremely large project or a government contract, you may receive small payments throughout the project or may receive nothing until the project is completed. While taking on these large projects is great for building your business, they can put a temporary crimp in your cash flow. Factoring can keep your cash flow consistent throughout the project and position your company for the next big project.
Businesses experiencing rapid growth. For a relatively new company that has a sudden influx of new business, it can be a struggle to keep up. Working capital can be significantly reduced or even depleted. Making it difficult to cover operating expenses or take on additional projects.
Still not sure if invoice factoring is right for your business? We can help you figure it out. Capflow Funding Group will work with you to find the best funding solution to provide your business with immediate working capital. We service many different industries with a variety of different funding needs. Contact us today and find out how invoice factoring can help grow your small business.
For many small businesses, keeping enough inventory on hand to satisfy customer demand is a constant struggle. This is especially true as the business starts to grow. Orders are received more frequently and get progressively larger. In an effort to keep up with the influx of orders, it’s not uncommon for working capital to become depleted. This lack of capital can leave a business waiting for invoices to be paid before purchasing new inventory. Without the necessary inventory to continue filling orders, business comes to an abrupt halt and the business owner is left scrambling to secure the funding needed to keep their business growing. Purchase order financing can be a great solution.
Purchase order financing enables a business to accept and fulfill a large order they would otherwise have to decline. When applying for this type of funding, the financing provider will require a confirmed purchase order from a creditworthy commercial customer and an invoice from the supplier for the goods necessary to fill the order. Once approved, the provider will pay the supplier directly. Typically, the financing provider only covers 75 – 90% of the cost of supplies, requiring the business owner to provide the balance. The goods are then shipped directly to your customer and the customer is then invoiced for those goods.
The repayment of purchase order financing is normally done by using invoice factoring. The financing provider will buy the customer invoice at a discounted rate, typically 70 – 90% of the face value. The customer will pay the full invoiced amount directly to the financing provider. The business owner will then receive the remaining balance minus a factoring fee. While there is a small expense associated with purchase order financing, it can be very beneficial for a business experiencing growing pains.
Every business owner cringes at the thought of taking a loan and making those monthly payments. Purchase order financing is not a loan. It is an advance on future earnings, so when utilizing it, you will not be taking on additional monthly debt. It is a great short term funding option for a business that needs a quick influx of working capital.
Nothing will drive a customer to one of your competitors faster than not being able to fill an order. No matter how good your product is, if you can’t keep up with the demand, your business will develop a reputation for being unreliable. This type of reputation will not only cause you to lose current customers but it will also jeopardize future business.
As a business owner, you probably heard the old adage “You have to spend money to make money.” This is certainly true when trying to grow your business. That’s not the time to be damaging customer confidence and loyalty by turning down orders. It’s the time to take advantage of every opportunity that comes your way but without incurring large amounts of debt. Purchase order financing will allow you to do just that.
CapFlow Funding Group is dedicated to providing the short-term working capital you need to keep your business growing. We will work with you to find the best funding solution for your business. While CapFlow Funding Group specializes in factoring, we can also connect our clients with purchase order financing if that is better suited to their business needs. We service many different industries with a variety of different funding needs. Contact us today and find out how invoice factoring can help grow your small business.
It’s something that most small business owners don’t think about until it’s time to implement it, but an exit strategy is an integral part of growing a business. Just as you would plan for your personal retirement, you need to plan ahead for that time when you either hand over the reins or decide to simply close up shop.
There are a variety of ways to exit your business and move on to the next stage in your life. One of the most common options for a small business is to exit by handing it down to a family member. With this type of exit strategy, you need to choose someone who can handle the challenges of business ownership and groom them over time so they are prepared when you are ready to step down. Even if it was your intention to keep your business in the family, there isn’t always a family member who is up to the task. To ensure a successful exit strategy you may want to consider other options.
Selling your business is a great alternative to making it a family legacy and there are a number of ways to do this. You can offer it to a business partner, manager or a qualified employee. Often one of these people will be just as passionate about the business and its continued success as you are. They’re familiarity with daily operations and your customer base can make for a smoother transition. They may also want to continue working with you on a part-time consulting basis until they are confident in their own abilities.
If there isn’t anyone within your company interested in buying you out, a merger, an acquisition or an “acquihire” are also good options for an exit strategy. With a merger or acquisition, your business is typically either merged with or purchased by a company whose products or services align with yours. An “acquihire” is very similar to an acquisition but your business is purchased simply for the sake of acquiring its talented or skilled employees. While this can help provide consistency in their employment, it is important to negotiate for your employees’ needs when executing an “acquihire” or there may end up being a mass exodus leaving everyone unhappy.
Some business owners opt to close their business, rather than hand it down or sell it. This decision may be intentional or due to a lack of interested parties, but can still be a viable exit strategy. Exiting your business takes planning to ensure it is in the best possible shape no matter which exit strategy you choose.
A solid exit strategy should include tactics that optimize your company’s value and be an integral part of business growth. Here are some of the key things to focus on to keep your business growing and your exit strategy on track.
Important to both business growth and fortifying your exit strategy, you want to figure out ways to increase your recurring revenue. It could be through subscriptions, loyalty programs or lease agreements – whatever creates repeat business for your specific industry. Potential buyers or family members poised to take over your business will want to know they have a certain amount of revenue they can count on every month.
Just like in real estate, the location of your business matters. If it’s a physical location, it should offer easy access for your customers and provide ample and attractive space to conduct business comfortably and efficiently. For an online business, you should have an attractive, informative and user-friendly website that is current and fresh. The prospect of moving to a new location or a major website overhaul right out of the gate could make a potential buyer or family member hesitant to take over your business.
In addition keeping pace with your industry, you should be implementing ways to outpace your competitors. This will have a significant impact on business growth and better position your company for a successful transition.
It just like that old saying “don’t put all your eggs in one basket”. If your customer base only includes one or two demographics, your business will be more vulnerable to fluctuations in revenue. The more varied your customer base is, the better shot you have at mitigating that risk and maintaining a more consistent income.
No one knows your customers better than you. Be certain to document any successful sales tactics or techniques that have consistently resulted in conversion. Passing them on to the next person to take charge of your business will allow them to feel more confident in their future success.
Now, you’re probably thinking these sound a lot like things you need to do to grow your business – and you’d be right. Cultivating a successful business will make whichever type of exit strategy you choose equally successful. Along with hard work, dedication and sweat equity, keeping business growth on track can sometimes take a bit more working capital than a business has on hand. Securing small business funding to bridge that gap can keep your business moving forward toward the perfect exit strategy.
If a lack of working capital is holding your business back, Capflow Funding Group may be able to help. We specialize in factoring for businesses in need of short-term working capital. We also partner with other lenders to provide funds for businesses that require financial services other than ours. Contact us today and find out how we can help you grow your business and achieve your long term goals.
