A very common cash flow problem experienced by small businesses is the fact that the company's invoices are often paid net 30 days - leaving little cash on reserve. The only way a business owner can cope with this situation to juggle their vendor payments, which works to an extent, however if your business is growing, you will need more cash flow. This means that juggling payments alone won't work, and eventually you will run into some serious cash flow problems. This could affect your company's ability to operate at all. Worse yet, if the problem grows, you might be at risk of missing your most important payment: payroll for your emloyees.
In reality all that is needed is to have just enough cash available for your business to use for day-to-day expenses, or business financing to cover any cash flow shortages until the clients pay their invoices. But as many companies have found out lately, getting business funding in the current economic environment is quite complicated since institutions are only offering credit and/or business loans to solid companies who have had some years of experience, and not to startup companies. Therefore, qualifying for a business loan these days means that your company must not only have impeccable financial statements,but an experienced management team, and some form of collateral that can be pledged as security for a loan. Few small to medium sized enterprizes (SMEs) can meet these criteria.
There is an alternative financial solution that could solve this problem - via a tool called invoice financing. You can get faster invoice payments using factoring when your client does not pay sooner. Rather, a financial intermediary provides an advance against your invoices. This gives you the liquidity you need to operate your company, without having to worry about when your clients will pay. You then will settle the transaction with the financing company once your client pays the invoice in full.
Invoice factoring is easy to get and it is also available to most small to mid-sized companies. Since the finance company is funding your invoices, it's important that you work with clients who have good commercial credit. The fact that financing is tied to your invoices also makes it flexible as it will grow along with your sales.
Even though factoring won't benefit everyone, the product is best used by companies whose biggest problem is that they can't afford to wait 30/60 days to get paid by clients.
Kristin Gabriel is a professional marketer and also writes for The Interface Financial Group (IFG). IFG provides short-term financial resources serving clients in more than 30 industries including invoice factoring. IFG offers expertise in construction factoirng, accounting, finance, law, marketing and banking. Visit http://www.ifgnetwork.com
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