Authored by Phil Cohen
One of the largest problems confronting small businesses is balancing the need to receive payments quickly with the need to collect payment in full. While larger businesses have the resources (and, let’s face it, the influence) to negotiate full-on-time payments, smaller businesses don’t unless they have a truly unique brand proposition.
If your company is struggling to figure out the right balance, the important thing to consider is how large your cash flow gap is and what your best option is to close it – and invoice factoring may be the answer with extended payment terms.
How large is your cash flow gap?
Use payment records to determine just how long you are waiting for payment, and compare that to when your expenses are due. If your payment terms are 60 days but customers are pushing payments out to 90 or more, you have a significant gap that can prevent you from staying current on your own expenses.
How do we close the gap?
Closing the gap is critical, and there are a number of options for doing it:
- Accept smaller payments for a faster turnaround.
- Apply for a small business loan to cover the gap.
- Begin invoice factoring to offer extended payment terms.
The first two options are self-explanatory but may be unrealistic for your business. If you offer a discount for more prompt payment, the discounted amount of each payment may be insufficient to cover all of your cash flow needs. If you seek a traditional small business loan, on the other hand, you may have insufficient credit and collateral to qualify – and the underwriting takes weeks that you may not be able to afford.
Learn more: The Basics of Invoice Factoring
Learn more: How to Get Customers Invoices Paid Quickly
Invoice factoring is a viable solution to all of these issues. When you factor your invoices, you will receive as much as 95 percent of the invoice amount within 24 hours; then, you will receive the remaining amount when the invoice is paid. The underwriting process is streamlined, taking as little as 1 to 3 business days rather than weeks or months, and you can qualify no matter what your credit score looks like.
The factoring fee associated with a typical transaction will be significantly lower than the interest charged on a small business loan, and you can control your factoring costs by only factoring what you absolutely need! You can offer the extended payment terms your customers need without sacrificing the financial well-being of your company.
Factor Finders works with a nationwide network of factors to provide invoice factoring for small businesses in nearly every industry. Find out more and get started today by calling 216-292-5660 or request a free online quote.