All businesses require working capital to conduct operations. While this may be the inherent case with any type of business, most businesses struggle to maintain a healthy cash flow.
Oftentimes, companies struggle to keep consistent forecastable receivables. This is due to the sales cycle that may be common in their industry. For example, many manufacturers do not receive revenue from the invoices right away. Some wait 30 to 60 to even 90 days from the invoice draft to receive revenue. This can create a lot of liquidity pressure on a business, who might have outstanding purchase orders that they simply can’t fulfill due to working capital constraints caused by prolonged collection. These cash flow management errors can negatively affect your business.
It can be beneficial for a company to explore what alternative financing options are available to them if they have the business but are struggling to collect on receivables and keep cash flow levels operationally sound.
Fortunately, there are resolutions of some cash flow management errors. There are essentially two avenues of alternative financing that a company can research and apply for, outside of traditional small business loans. One is equity-based financing, and the other is revenue-based financing.
Equity based financing is commonly direct investing, or crowdfunding. A company will offer equity % in their company in exchange for a quick capital investment in their business. This investment will typically be for operational or expansion purposes. While the business may receive much needed capital quickly, they will leverage the long-term potential of their company vs the short-term advantage of an injection of working capital.
With revenue-based financing, a company will apply and receive funding based upon pre-existing revenue the business is already generating. With revenue-based financing, a company does not lose any equity in their business. They simply pay back the financing over a duration of time with fees attached. While revenue-based financing can typically be more expensive in the short-term, in the long-term no equity is lost in the process of attaining working capital.
Consider revenue-based financing to stabilize your cash flow.
Invoice factoring is one of the oldest, and most tested forms of alternative financing. Quite literally invented in Mesopotamia thousands of years ago, factoring has essentially assisted companies in their growth. Without leveraging ownership in those companies for that working capital. Simply put, if a business is generating customers and business and is mostly struggling to collect, an invoice factoring deal could be the boon needed to reach new heights.
Businesses from all industries, need consistent streams of working capital to be able to meet daily expenses as well as fulfill their daily operations. Depending on industry, the sales or collection cycle on outstanding invoices can be lengthy. Industries that suffer from a long sales cycle, can oftentimes be hampered by their ability to collect from customers.
Industries such as staffing, facilities management, security firms, food & beverage manufacturers, consumer products and many more all operate with 30 to sometimes even 60 days of collection. A business with such a long collection cycle can benefit from the capability of being able to factor specific invoices to manage cash flows.
A company that is considering invoice factoring should conduct thorough research on how factoring works and contact invoice factoring companies that offer flexible terms.
Applying for factoring is not difficult, and most of the application process is performed by the factoring company.
Some of the required documents for review will likely include:
Working with a factoring company can help you get the working capital you are looking for.
Flexible terms, and a consultative approach are the most important factors when considering a factoring company.
The terms to consider mostly center around which invoices can be factored, and what is the agreed upon discount rate for the value of those invoices. Most factoring companies will discuss these options and consult on rates.
Invoice factoring is a financial service that requires a factoring company to collect invoices from the businesses’ customers. Due to this intimate knowledge of your business, and communication with your customers, when researching factoring companies, consider whether their factoring program is consultative and sensitive to your business needs.
CapFlow Funding Group provides a consultative, customized approach to its factoring services. To receive a risk-free complimentary consultation, fill out the quick form on our apply now page. https://capflowfunding.com/apply-now-funding/
