Impacts of late payments
One of the biggest challenges that face every business is slow-paying clients. Late payments can have a detrimental impact on a business because it creates cash flow problems. In order to successfully handle a slow-paying client, it helps to identify them before they become a client.
Carrying out a background check on the client’s commercial credit rating and payment history will best inform you as to their creditworthiness.
Types of Slow-Paying Clients
Oftentimes businesses will come across 2 types of slow-paying clients: those that are slow but reliable, or those that are slow and unreliable. Slow but reliable clients are usually well established, creditworthy companies that stick to payment terms of 30–60 days.
Speed Up Cash Flow
One way to handle these clients is to build a cash reserve large enough to meet business expenses. The cash reserve will help to minimize any cash flow problems while waiting for payments. However, having a cash reserve can tie up cash that could be used to reinvest and expand the business.
A better way for businesses to handle both types of slow-paying clients is to use invoice factoring. This accounts receivable financing process specifically addresses cash flow problems caused by late payments.
Through factoring invoices, a business can sell its unpaid receivables to a factor for immediate working capital. The influx of working capital helps to improve short-term cash flow. Invoice factoring effectively eliminates the wait for slow-paying clients.
Why Not Just Wait for My Customers to Pay?
Waiting for your customers to pay their invoices can be an ordeal. Customers may take as long as 90 days or more to make payments. This waiting process can cause difficulties, as it limits your funds and causes cash flow gaps. Many businesses, especially small businesses, cannot afford to wait for payments because they need the working capital to cover present expenses and operational costs. Waiting for payments also hampers your business’s growth. Invoice factoring can help you to overcome late payments while improving your cash flow. When factoring invoices, your business receives working capital immediately. Invoice factoring can give you the confidence to run and grow your business without worrying about your cash flow.
Benefits of Factoring Invoices
Factoring invoices is an alternative method of financing, whereby a business sells its accounts receivables to a factoring company in exchange for working capital. This accounts receivable financing process has its own advantages and disadvantages. Here are the major pros of invoice factoring:
Fast cash
Factoring invoices allows businesses to skip the traditional waiting period required for collecting payments from customers. Businesses don’t have to wait long to receive funds from the factor; setting up an account only takes around 2–5 business days and factoring cash advances are usually sent within 24–48 hours.
Improved cash flow
Businesses using invoice factoring are provided with an immediate influx of working capital which quickly improves their cash flow. The funds can then be used to meet expenses and operational costs or to reinvest in the business.
Unlimited funding potential
There is no limit on the amount of funds that a business can receive through factoring invoices. It is a scalable financing solution that increases as a business grows. When a business grows and has more sales, they can submit greater volumes of receivables to the factor which will increase the funds available to them.
Easy qualification requirements
It is not difficult to qualify for invoice factoring as long as the business has creditworthy customers and invoices free of liens. The business is not required to have high credit ratings to sell its receivables to factoring companies. This aspect of invoice factoring is especially beneficial for small businesses.
Saved time and resources
Factoring invoices can save a lot of time and resources for a business as the factor assumes the responsibility of collecting payments from customers. The factoring company manages the credit control functions for the business which helps to reduce overhead costs for a collections department.
It is not a loan
Invoice factoring is not a loan, but rather a financial transaction. The factor simply provides immediate funds based on the outstanding business’s receivables. Businesses do not incur any debt.
Giving up equity is not required
Businesses do not have to give up any equity to receive funds from factoring companies. This means that founders retain full ownership and control of their business.
Get Started
Why wait any longer to improve your cash flow? Growth Capital will help put you on the path to success. Get a quote today