This article is focused on using factoring effectively to meet payroll quickly
One of many consequences of the recent economic downturn is that organizations have become more guarded and conservative with their cash flow. For example, many companies are conserving cash by paying their invoices more gradually.
In return, this has impacted smaller companies who depend on steady predictable cash flow to have the ability to meet their obligations. Also, smaller companies are also doing the exact same thing and striving to pay their invoices slowly as well. Ultimately, everyone’s cash flow is being affected.
The problem with this is that many small companies live one invoice to the next (not unlike paycheck-to-paycheck) and a hold up in invoice payments can quickly jam up their cash flow. And also since few small companies have any meaningful cash reserves, a holdup may affect their ability to pay vendors – and more importantly – their ability to meet payroll.
Missing out on payroll can have substantial negative outcomes that could in the end lead to the closing of the business. A line of defense to prevent a cash flow shortage is to develop a cash reserve. For businesses today this is easier said than done due to the fact most small businesses don’t have the ability to build a cash reserves.
However if you can build a cash reserve, your organization will be in a better situation to weather the inevitable storms that will hit your cash flow. If creating a cash reserve is not an option, then you should think about using a business financing solution that can enable you to cover payroll and other expenses if things get tight. Invoice factoring is a business financing solution which might be used to correct cash flow challenges relatively rapidly and without the hassles related with conventional financing.
It works by repairing the problem at the source. It supplies you a cash advance for your slow paying invoices, offering the cash you need to meet payroll and other essential expenditures. Using an invoice factoring remedy you can get rid of the uncertainty of client payments, enabling you to obtain a more foreseen cash flow.
One of many advantages of factoring is the most important thing you need to have to qualify for this type of financing is solid commercial customers. It’s ok if your customers pay slowly – given that they pay reliably. Aside from this, your business needs to be free of legal and tax issues. And factoring can be implemented fairly quickly – usually in a week or two.
One more advantage of factoring is that it’s tied directly into your sales. What this means is that it can be increased easily as your sales increase, provided that you are invoicing credit worthy customers. This makes invoice factoring the perfect solution for small companies with good potential customers that are hindered by cash flow problems.