For those seeking financing for small businesses, account receivable finances are invaluable; especially for the business which has too poor a credit score for start-up small business loan requirements. Also known as factoring, this is when a company sells off its invoices to another speciality company, called a factor, in exchange for a smaller but immediate pay-out. In exchange, the factor takes on the invoice, as well as the full profit. So why would companies give away part of their profits? The answer has to do with cash flow.
How a Cash Flow Affects Businesses
Most companies are acutely aware of cash flow—how much money goes to and from a company’s account in a given period. Obviously, no matter how high the profit the company is turning, when a company has more money leaving the account than going into it—the company will fail, it is more disastrous than bad sales or minimal profits. Sometimes companies might not make a profit, but they can’t haemorrhage money.
Appropriately, cash flows have a cycle, with ebbs and flows. For example, there is a cycle from paying a business expense, such as buying inventory or paying for insurance, rent, salaries, etc., to when you receive the income from your customers which funds more business expenditure. Knowing how your company’s cash flow cycle functions is essential to running your business, and shortening the time between paying and payday will make your company more profitable.
The first step is to determine your cash flow cycle. Identify when bills and salaries are payable compared to when the money from the consumer is due. Are they in the same time-period? If the bills come before the profits can, it will not matter how large the profits are; the bills will still have to be paid out-of-pocket. This is why even businesses that seem to be thriving go out of business, because they weren’t getting their income at the right time.
Factoring and Cash Flow
It is at this point, with bills due and the income not yet available, that most businesses go to the bank for an easy small business loan, or even to set up a line of credit which is less hassle if they consistently need a certain amount at a certain time. However, what about businesses that don’t have credit? With companies such as 48 Factoring Inc., these businesses can still get on. The pay-out which can be as fast as one business day helps to keep the cash flow steady. Not only does it assist when the credit is bad, but also when an unexpected expense needs handling immediately. In addition to standard methods of reducing the cash flow, factoring can be the difference between business success or failure.
Author’s Bio:
Hello! I am, Ethan Benjamin, a representative of 48 Factoring Inc. I am fond of writing as this is the best way one can express his thoughts. Being in the Finance industry, I have been writing articles related to current financial trends. I am currently focusing on creating unique and useful content for my company and the audiences. I love reading and sharing everything about this wide industry that I am associated with.
