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Aug 9, 201812:01 PMOpen Mic

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Boost your cash flow with invoice financing

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So many people assume that if you have rocky cash flow, you’re either operating a bad business or doing a poor job of running it. However, this rule of thumb simply doesn’t apply. Yes, a poorly run business can experience a cash crunch, but successful businesses also face cash-flow crises, especially in today’s business world.

Until you’ve witnessed or experienced it, it’s not easy to fathom how quickly a business cash flow situation can spiral on itself. Most people think a successful business has plenty of money, and it’s true, many do. But some, especially those operating as suppliers to other businesses, often survive invoice to invoice. They have adequate — sometimes robust — sales, but are challenged by customers who keep extending their payment terms as a financial strategy.

In recent years, many larger conglomerates have pushed their payment terms to 120 days. So while suppliers keep paying their bills for inventory on relatively short terms, they aren’t paid with the same predictable frequency. Could your business survive delivering goods or services without receiving payment for four months?

The strategy, of course, is for a large customer to hold on to its own funds as long as possible. That means you could operate a successful company, win a large, lucrative contract with a reputable, multinational corporation, and still have trouble predicting cash flow. That could leave you in a crisis for:

  • Paying staff on time;
  • Meeting essential obligations such as payroll taxes and insurance obligations;
  • Paying suppliers and replenishing inventory;
  • Reinvesting in your business;
  • Hiring additional employees to meet new demands;
  • Seizing a new business opportunity;
  • Paying rent; and
  • Taking advantage of special temporary pricing.

Other businesses that often benefit from invoice financing include manufacturers who purchase large quantities of materials to fulfill orders, businesses with high overhead costs, and others with seasonal peaks and valleys.

Seasonal challenges

Businesses with peak and slow seasons encounter financial demands of a different sort. In the peak season, those companies need access to cash to finance higher receivable levels, pay more employees, etc. Traditional loans require a steady, predictable income, so flexible invoice financing can help these companies meet their seasonal needs.

We helped one client that manufactured upscale fishing rods grow from a $13 million company to a $31 million company when the owners sold it. They were loyal to their local bank, but that bank couldn’t provide them with a larger line of credit due to the seasonal nature of the business. We carved out a pool of longer-term receivables to help them tap into more cash to invest in their company at a critical time.

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