Managing cash flow is one of the most essential tasks for any business. Your working capital will determine whether or not you can pay wages, bills, taxes and make viable plans for growth and expansion. You’ll need to get the right balance between your outgoings and your incoming capital – which will most likely be from customer payments. Many SMEs find this a difficult thing to juggle, especially with customers sometimes taking months to pay. So, how can factoring help balance out your cash flow?
Factoring helps by advancing the value of invoices, which can be as soon as they are issued to a customer. This means that your incoming cash can be guaranteed within a couple of days rather than you not knowing when you’ll get paid – or if you’ll get paid at all. You’ll be able to release 90% of the invoice value immeadiately with the remainder paid once the customer has cleared their debt, minus a small lending fee from the factoring lender.
The factoring process can streamline your cash flow so you know you’ll have enough money to cover your costs. Not having sufficient working capital can paralyse a business, especially when customers aren’t paying up and your suppliers are clamouring for payment themselves – which you can’t meet because your own customers haven’t paid. This becomes a vicious cycle that’s hard to break, but turning to invoice factoring can be a way to ease the pressure.
It’s not just a last resort form of financing, as has been the image invoice factoring has gained down the years. The benefits that businesses feel on their cash flow is significant, especially during the harsh economic times now prevalent. The economic circumstances has meant that bank lending is being reined in, and eligibility requirements are becoming more stringent. Businesses with full sales ledgers are now turning to factoring as a way to ease their cash flow, especially as it means not taking on any new debt – something many are looking to avoid.
If you need a way to ease your business cash flow issues, then invoice factoring could be one option to explore.