Small business owners can quickly run into struggles with their cash flow as they tie up all of their money in customer invoices and inventory. If you are struggling to pay your debts, your business credit will start to suffer because you do not have the money to pay your lenders as your customers are not paying their debts. Invoices are essential to the business as they sustain your cash flow. When customers do not pay on time, it's a good idea to consider invoice financing. Invoice financing provides you with an opportunity to acquire the money you need now so you can pay for other business needs.
Giving customers 30-60 days to pay their invoices is a nice gesture and a great way to build customer relationships but without pushing them to pay their invoices in a timely manner, you may be overextending yourself and leaving your business in a bad debt situation.
When you deal with invoice financing, you may start requesting your customers to make their payments when they initially purchase your products. Having at least 20% or more of the total invoice amount will give you an opportunity to acquire money to pay for the initial cash flow break even costs and then you can focus on collecting the rest of the money at a later time.
Applying for invoice financing is a wonderful opportunity for any business as you have the money you need to sustain your business now. How does invoice financing work? You simply contact a factoring firm that will handle the collection process for you. They will provide you with an initial deposit, usually about 80% of the total invoice amount. Once they are able to collect the funds from your customer, you will be paid the other 20% minus their fees. It's a great way to acquire money so you can order more raw goods to produce.
A number of businesses use invoice financing to take on larger orders from their customers. The factoring company will take a look at your business credit to make sure they are working with a company that pays their bills in a timely manner. They will also find out the payment history and credit of your customers. They need to check on their payment history to make sure your customers are not known for stiffing you on the bill. When you have customers that miss payments, it puts the factoring company in a difficult spot because they won't be able to acquire money from them to pay for their fee amount. The other hard thing about dealing with customers that don't pay their invoices on time is that the factoring firm will need to put in a lot of time and effort to collect the funds from your customers.
Your customers will need to sign a contract with the factoring company when you sell your invoices to them. This contract basically states they will pay their invoice in a timely manner. Usually they offer them a few different payment options like a lump sum payment or they can enroll in automatic payment plans until their invoice amount is paid.
Keeping solid financial records will help you acquire invoice financing. Factoring firms want to make sure you have strong organizational skills and that you don't have issues with your cash flow. Invoice financing should be a way to acquire money so you can take on larger orders versus a desperate attempt to save your cash flow. They will charge you a fee for their services, but it is usually pretty small compared to the time and effort you will have to put in on your own to acquire the money from your customers.
Corporate Credit Concepts specializes in invoice financing. For more information about invoice financing and how it might benefit your business, please CLICK HERE for a free phone consultation.