5 Common Cash Flow Problems That Invoice Factoring Can Solve

Last Updated Jun 23, 2020 | Published on Mar 11, 2019 | Invoice Financing

It’s not uncommon for a small business to experience cash flow problems. To remedy this issue, business owners often turn to invoice factoring Long Island to obtain the cash they need. For those of you who may not be familiar with invoice factoring, it allows you to ‘sell’ your outstanding invoices to factoring companies/lenders at a discount.

Related: Invoice Factoring 101: Everything You Need to Know About Small Business Factoring

What’s helpful is, a business doesn’t have to wait for months before their invoices are paid – which is the case for most companies. In fact, you can receive 85% of the total value of an invoice within 24 hours. Once your customers fully pay their invoices, you then receive the balance, minus a small transaction fee.

Invoice Factoring Long Island: How It Solves Cash Flow Problems

Cash flow problems hinder your business’ growth and expansion. Without enough cash, you aren’t able to pay for daily business expenses, your suppliers, staff, or other unexpected fees. Lack of cash flow can compromise your finance agreements, which can lead to debt accumulation.

Here are four of the most common cash flow issues a business can face:

1. Quick Business Growth

Entrepreneurs dream of growing and expanding their business, but when rapid growth occurs, it can actually do more harm than good. A sudden surge of sales or a single large order of goods can happen. And along with that, repayment terms of one to three months can become a source of problems. As a result, cash flow issues occur.

Related: 4 Ways Rapid Business Growth Does More Harm than Good

However, by selling your invoices, you are able to free up the cash from your sales to support the steady growth of your business. With available cash, you can pay your suppliers for the goods you ordered. By doing this, you maintain a healthy relationship with your suppliers and ensure that you stay on good terms with them.

2. Delayed Payments

Unfortunately, delayed payments are one of the greatest hurdles a small business can face. In fact, 37% of businesses believe late payments are the single greatest reason for cash flow problems. Oftentimes, larger companies delay paying small suppliers, sometimes 60, 90, or even 120 days after payments are due. As a result, the smaller companies are left dealing with cash flow gaps which can be damaging to their business.

Fortunately, invoice factoring helps bridge accounts payable and accounts receivable. This way, you can focus and apply your energy on operating and growing your business. You also won’t have to worry about experiencing shortage on cash flow since you can easily inject cash into your business through invoice factoring.

3. Poor Credit Control

One of the primary causes of cash flow problems stems from poor credit control. Small businesses usually don’t have the time and resources to conduct proper credit control and put in place an effective payment collections system. But failing to check your customers’ credit and regularly collect on debts can eventually cause you problems, including cash flow.

With invoice factoring, the factoring companies take on the burden of your business’ credit control process. They have their own team that specifically handles payment collection. This lowers the risk of accumulating bad debt. Aside from that, it also provides you with the cash you need in order to continue to operate your business.

4. Long Lead Times

In the retail industry, business owners usually receive bulk orders on products, and payment terms are typically 30 to 60 days after the goods are delivered. Furthermore, if you manufacture your goods overseas, it can take six to eight weeks before you customers receive the products. This means that it could take three to four months before your customers can pay your invoice. As a result, you’re left with a huge gap in your cash flow.

With invoice factoring, however, you can gain immediate access to funds once your invoices are issued. The factoring company will pay you upfront for the invoices and collect the payments from your customers. You then are free to continue to grow your business, as well as take on new orders from your other customers.

5. Tightening Credit Terms

Suppliers usually require their customers to pay the goods during or 15 to 30 days after the delivery was made. However, if your business sets a longer repayment term for your customers, say 45 to 90 days, it can be harder for you to keep up with the needed amount. This results to cash flow problems.

Invoice factoring helps prevent this issue by freeing up cash tied to your customer’s invoices. The availability of the funds helps you pay suppliers as soon as needed.

Invoice Financing Solves Cash Flow Problems

Stable cash flow is vital in all businesses, but most especially in SMEs. Problems like late or delayed payments can easily bring your business’ financial health down. However, invoice factoring Long Island ensures that cash will keep flowing in your business. It solves cash flow problems, thus, helping your business with its day to day expenses and avoiding missed opportunities. In short, invoice factoring is the best way to free up cash, stabilize cash flow, and ensure success in your business.

 

 

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