Even companies that planned and budget meticulously can run into cash flow issues from time to time. Anything can happen that sends your cash flow into a tailspin. Whether a vendor declares bankruptcy or large orders are canceled, you might find yourself needing extra cash flow in a pinch for a number of reasons.
It’s impossible to plan for every possible scenario, but the good news is that there are steps you can take to help prepare your business for the unexpected. The following are some of those steps that you can take:
Build a Cash Reserve: Setting some money aside in case of a financial emergency is not only recommended, it’s advisable. Simply putting a few dollars away each month in a reserve fund can help your business stay afloat if you ever come up short on cash in the future. This money can help pay your basic business expenses and help your business survive financial hardships.
Accelerate Client Payments Through Discounts: Consider offering clients a discount if they are willing to pay their bills early. Many clients will be happy to help you with your cash flow by paying early if you are offering them a discount to do so. However, this is not the most reliable way to do things as clients don’t have to pay early. They can opt-out at any time, but if a few clients can pay early, that can be an added bonus for your business and the client’s pocketbook.
Finance Slow-Paying Invoices: If clients aren’t paying up early, consider factoring your invoices for additional cash flow. Factoring is when you partner with a factoring company that often will pay for the slow-paying client’s invoices. This helps provide you with the capital that your business needs to keep moving forward to take on new clients and continue to grow your business.
How Does Invoice Factoring Work?
Invoice Factoring is when you purchase your invoices in two installments: the advance and the rebate. The advance will pay about 80% of your total bill as soon as the order is fulfilled. The remaining 20% will be something called “rebated” which is the remaining 20% of the amount minus a fee that the factoring company charges to cover their services.
Using Invoice Factoring will allow you to keep the cash flow coming while your clients take more time to pay. This can help you continue to grow your business without slowing up your cash flow.
For more information on invoice factoring and if it’s the right move for your company, please feel free to contact us. We are always here and ready to help!