If you are in business then you know how frustrating it can be when your cash flow is challenged. Sometimes you have customers who decide not to pay their accounts. Or, maybe you have overstaffed and not enough hours in the week. It can be challenging to meet payroll and stay on top of everything. Why not use receivables to increase your business?
A business can get a traditional loan from a bank. You are in search of another alternative because you want to avoid new debt. You could also t receive a loan from a conventional lender since you have not paid your previous line of credit in full. However, you do have a second choice which is your receivables route. Your lender may have a specialized program that you can qualify for that does not require a traditional loan. This would free up your wallet to purchase materials and payroll.
When you arrange financing for a small business through invoices receivable you get two main benefits from the arrangement. First, you will only be required to pay your invoices once and then you can write the checks as and when they arrive. Since the payments are in advance and due when they arrive, you do not incur any interest or other charges. Another benefit is that you can save the lender money by paying less interest. In addition, you can make a large profit since you have no outstanding balances.
Invoice financing is not the only way of getting paid invoices. If your business generates enough profits to cover its expenses then you could qualify for working capital management. Working capital management helps you keep your small business liquid so that you get paid invoices easily. Working capital management also helps you manage your debts and you can use this to improve your cash flow. You need to borrow working capital from a lending company and it carries with it certain risks.
One of these risks is that your cash flow might fall because you cannot pay your invoices. To avoid such a situation, working capital management can help you to secure loans by offering collateral against the loans. Collateral may come in the form of your property or the equity of your business. It ensures that you get paid the invoices in a timely manner by ensuring timely collection of payment. It also ensures that you do not default on the payments because the lender can repossess your collateral. It is therefore a win-win situation for both the lender and the borrower.
Most business finance companies offer collateral based Small Business loans which facilitate the working capital management and ease your immediate cash flow problems. Since your businesses can incur heavy losses without collateral, most banks offer acceptance process. Your application will be reviewed carefully by the bank officials who carefully look into your business prospectsus and overall cash position. If they find that the financing is justified, your application is approved and the loan amount sanctioned.
Working capital management solution also involves the sale of secured short-term borrowings to meet the short term financing requirement. A short term financing requirement refers to the need for immediate financing to meet the operational expenses. Most banks provide such funding and there are few exceptions. The sale of these secured borrowings facilitates quick liquidity which is needed at the earliest to avoid the fear of non-payment or foreclosure. In fact, this is one of the best ways of securing financing especially for the start-ups.
However, if you want to secure financing without involving the sale of your property or shares, you can opt for accounts receivable factoring. Accounts receivable factoring facilitates the financing of short-term invoices by collecting payments from customers who buy the accounts receivables after paying the invoices. The customer pays once he receives his invoice factoring payment. This method provides a fast cash flow without involvement in any risky financing transactions.