Businesses that need working capital and haven't been able to secure a traditional line of credit or are having trouble collecting from slow-paying clients should consider invoice factoring.

Invoice factoring is how a company can secure capital for its creditworthy invoices. A factor buys invoices from a company and pays the company at a discount in advance.

Every company must receive payment for goods and services. It's simple at its core, but companies cannot overvalue the importance of ensuring a continuous cash flow. 

The time between invoicing services or goods and the receipt of payment can be challenging, especially for a business lacking adequate operating capital or effective cash-flow management strategies.

Most business owners understand the significance of managing cash flow. An unexpected—and unwanted—dip can force a business to seek immediate help. Knowing when to turn to invoice factoring as a financial solution is just as important. 

Below are common reasons a company should inquire about invoice factoring services.

You're in A Cash Flow Crunch

Cash flow isn't just a metaphor – it is the lifeblood of companies; it gives a business the flexibility to meet unexpected expenses and invest in the future.

There are many ways to improve your cash flow. You can send invoices immediately, offer a discount for early payment, or strengthen your inventory by purging or splurging (if data supports this action). 

Business owners can also get help from invoice factoring. It's not just about acquiring money; businesses can also benefit from reduced borrowing costs by taking advantage of invoice financing. It's similar in some ways to traditional bank loans, except it's cheaper because there's no collateral needed. 

If:

• Capital costs are lower than the cost of borrowing from banks.

• The business needs cash quickly.

• Cash flow is tight, and the company does not qualify for bank financing.

Then, invoice financing can help.

You need work capital, but no bank will lend you money.

Securing working capital is one of the primary reasons companies choose invoice factoring. 

If you need capital for daily operations, your bank may not help you. Even if they do, the process can often be slow and frustrating as it takes time to get approved and then finalized.

Let's say you're a business owner who has just landed a new client with a $50,000 project. If you have no other means of securing financing from another bank or lender, then you must wait until you've completed the project to receive payment from your client. 

If you have to wait for completed projects, your business will have to live off of the cash in your bank account. If your business is like most businesses, you won't have enough money to sustain operations for that long.

Banks know this, which is why they're hesitant to provide short-term lines of credit to new and small businesses.

You need to build and maintain a healthy inventory.

Inventory is a necessary evil. Business owners must have inventory to sell products, but they must also pay for the product upfront; this can cause issues because businesses don't always sell every product they purchase. Having excess inventory on hand can be as bad as not having enough.

You want to finance a new inventory order. You can't afford to tie up all your available capital in inventory purchases. It's vital to save some money every month, but it's also imperative not to let your cash flow become so tight that you miss out on good opportunities.

Trying to finance your growth through traditional bank loans is difficult. Banks rarely lend money for inventory purchases, and if they do, the interest rates are high. 

One of the benefits of using an invoice factoring company is that it allows you to get the cash you need before selling your products. Invoice financing gives you a percentage of what your invoices are worth right away, whether or not you've sold anything. That cash infusion helps to grow your business without waiting for customer payments.

 

You Need To Make Payroll

There are many reasons why businesses get into payroll crunches. Some problems are temporary, some are permanent, and management mistakes cause others. Here are some reasons that payroll problems can occur: 

• Oversight. Payroll is often one of the last items on the agenda when there is a meeting to discuss business planning for the upcoming month. That means that sometimes payroll gets overlooked.

• Temporary issues. If there is a quick drop in sales or an increase in expenses, payroll may need to be temporarily adjusted until things go back to normal.

• An employee leaves without notification. Sometimes, an employee will quit without giving proper notice and then leave the company holding the bag as far as what they owe in terms of final paychecks or other obligations related to employment, such as COBRA or health insurance costs.

• Bad payroll process. Incorrectly setting up the budget for payroll can cause problems managing the process. The budget needs to be set up correctly from the beginning, with adequate reserves for taxes and other costs of doing business expenses so you can avoid payroll issues.

The ability to recognize the warning signs of a likely payroll crisis will keep your doors open today and provide opportunities for a successful future.

You Want To Take On More Projects

You want to take on more business projects. How are you going to afford all this growth? Invoice factoring can help. Factoring is a simple way to grow your business by tapping into your customers' credit. 

When you accept a job from a client:

• Factor in their invoice immediately.

• Factor the invoice before you do any work.

• Factor it in before you buy any materials or hire any subcontractors.

You can get paid directly after factoring in their invoice, even before delivering the project to them. Use that money to finance the cost of labor and materials and overhead expenses like equipment, insurance, taxes, and rent. 

You'll be surprised how many new projects you can take on when you have that extra cash flow fueling your engine.

Invoice factoring works well for both large and small businesses. For small companies, it's an excellent way to generate immediate capital without having to take on a loan or use existing assets as collateral. For larger companies, invoice factoring provides an efficient means of managing accounts receivable, increasing cash flow, and reducing business costs.

Crown Financial, LLC provides financial flexibility to companies that need it when they need it. Contact us today to discuss how invoice factoring can help your business.