Using cash flow factoring the smart way to grow your business
Cash flow factoring products like invoice discounting can accelerate your business growth. If used smartly, they will allow you to grow way beyond the limits imposed by your existing trading history, asset base or bank facilites.
There are three main categories of business that should seriously consider having an invoice discounting facility in place to allow them to use the leverage of cash flow factoring.
• Recent start-ups.
• Rapid growth.
• Short term cash-flow crisis
Ask any business bank manager or accountant what is the number one most common problem for new business start-ups and most will say under-capitalisation. Put simply, this means the business hasn't got enough money behind it and so runs out of cash.
It doesn't seem to matter how carefully planned the business launch is, or how well executed the plan is, almost invariably it seems to 'cost twice as much and take twice as long' as the owner anticipates to get to the point where the business cash flow is constant and positive enough to not be a problem.
So, it is very common for start-ups to have a cash flow squeeze a few months after launch. This will be particularly true if the owner/s have given up their regular jobs to commit to the business.
If, however, the business is growing and turning over sufficient income, then a cash flow factoring facility, like invoice discounting, could be the answer.
Maybe your business is ticking over nicely. You are on top of your cash flow. Then, all of a sudden you hit a problem - success ! Yes, that's right, success. You've been doing such a great job servicing your existing contracts/clients, or your marketing has finally started to show dividends. So, the phone rings and all of a sudden your business has doubled or tripled it's turnover.
You're so excited. Just what you were hoping for. Problem is your cash flow peaks and troughs have also just doubled or tripled. You may also need to emply more staff, buy in more product or materials, etc, etc.
It may seem strange if you're not familiar with how business finance works, but success like this, rapid growth, can actually be the death of a good business. Cash is king, remember. One of the surest ways to run out of cash is to grow too quickly when you don't have enough working capital.
By having a cash flow factoring facility in place, the business can grow rapidly and not run out of cash. The facility will grow with the business, whereas a bank facility will have a limit. The bank will be concerned at 'over trading', whereas your invoice discounter will not.
Cash Flow Crisis
Let's face it, cash flow crises are part and parcel of being in buisness. Business is often an excercise in running out of money.
Not enough demand ? Run out of money. Rapid growth ? (see above) Run out of money. Unforseen catastrophe ? (Key personnel leave or sick, crash a vehicle, premises burn down, etc, etc). Run out of money. Sure, there's insurance. But then there's also excess and down time.
A cash flow factoring facility allows your business to ride out the unforseen difficulties, providing access to working capital that is only limited by your accounts receivable ledger.
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