Cash Immediately to Finance Cash Flow

The number one reason a business fails is because it lacks necessary capital. The average amount of time it takes to receive payments on invoices is often nearly sixty days. Accounts receivable often cause a business to not be able to fill additional orders and continue to grow.

It is particularly difficult for a company when it is experiencing growth. It is difficult to continue to fill orders when past orders become past due. A lot of the capital gets held captive in the accounts receivable cycle.

Companies will not grow unless they have a source of capital. If the company is not able to qualify for a conventional source of funds, it must be able to finance the shortfall from carrying receivables.When an accounts receivable cycle is longer than the accounts payable cycle, it creates a cash flow deficit.

When a company is in a situation where it needs conventional loans and can't qualify, it is necessary to look for alternative ways to improve cash flow. One viable alternative not only offers to help improve cash flow but to do so without creating debt. It is a process called factoring.

Factoring is a process providing an advance almost immediately after an invoice has been submitted. A third party called a factor advances eighty-percent of the face amount of the invoice. The company's client then owes the factor for the invoice and advances the other twenty-percent minus a discount fee after the invoice has been paid in full.

When a company is not able to qualify for a conventional loan, it should be a high priority to do whatever it can to get into a position to be able to qualify. When a company improves the balance sheet by converting its invoices into cash, it helps in an effort to eventually being able to qualify for a conventional loan at a future date.

One of the advantages of factoring is there are no periodic payments. A company can consider factoring as though it is a debt-free line of credit. As a company continues to grow, it would also seem as though their line of credit grows automatically. The more invoices and larger dollar volume increases the amount of immediate fund available through factoring.

Credit card companies pay credit card invoices almost immediately after a credit card invoice has been submitted. A discount fee is taken out of that payment. One difference in factoring is that two installments are paid. The discount fee is taken out of the second installment. The first installment is usually about eighty-percent of the face amount of the invoice.

Factoring companies are interesting in whether a company is viable and their clients can pay the invoices. Thus, it is not necessary for a company to have perfect credit in order to be able to qualify for factoring. The viability of the company and its clients can be determined mostly from a submission of aging accounts receivable and accounts payable.

Application for factoring is relatively easy as compared to applying for bank loans. Furthermore, once an application has been accepted, funding can take place within about ten business days. On the first funding, all of the eligible outstanding invoices can be funded. Thereafter, only new invoices can be submitted.

Company decision makers should be able to determine their present cash flow situation and what it would take to turn negative cash flow into a positive cash flow position. In some cases, a company may want the option of factoring only large invoices or perhaps only the invoices past due. Would your company be able to do well on factoring only invoices past thirty days?

In most cases, leasing requires a company have a good credit rating. Leasing often offers tax benefits. One should check with an accountant for advice about whether it is in the best interest to buy outright or lease. There are two types of leasing. In one case, the company has the option of purchasing the equipment at the end of the lease for one dollar. Another scenario involved returning the equipment. Sometimes returning the equipment is a better option particularly for a company that needs newer technology periodically.

Other alternative options include selling a note. The time-value of money is something that should always be considered particularly when there is a desperate need for money and cash flow improvements.

It is difficult for business owners to sleep at night when there is a cash flow problem. When possible, a company should do whatever it can to turn negative cash flow into positive cash flow.

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