Business Turnaround Strategy and Invoice Factoring Go Hand in Hand
The top priority in most business turnaround strategies is to speed up and stabilize cash flow, giving a company time to cut expenses, grow sales and regain momentum. Invoice factoring can play a key role as part of a business turnaround plan; here’s why.
Top Business Turnaround Strategy Priorities for Distressed Companies
Implementing tactics for stabilizing cash flow and collecting payments on invoices as quickly as possible is usually priority one when business turnaround consultants come in to help a struggling business. Why? Simple: Speeding up cash flow buys time for a struggling business – time that is critical to allow business restructuring, operational, personnel and procedural changes to be enacted, take root and begin making a difference.
In Best Practices for Turning Around Distressed Companies: The First Steps, the CEO and managing partner of NYC Advisors LLC advises that step one in a business turnaround strategy is to get control of cash and cut unnecessary expenses, including “Collecting your accounts receivables as quickly as possible,” even if it means offering cash discounts for faster payment.
In lieu of offering cash discounts to customers for remitting payments within the first few weeks after an invoice goes out, a struggling business could receive payment on a customer invoice within 1-2 days of when the invoice is generated by factoring, or selling, the invoice to a factoring company for a small fee (called a factoring fee). Furthermore, the factoring fee charged for same day payment on customer invoices will probably be significantly less than a quick-pay customer discount and may even be tax deductible.
Invoice factoring could be preferable to offering customers early payment discounts for many different reasons; such as:
- Early pay discount still means a delay in collecting on receivables of a few or even several weeks
- There is no guarantee that a customer will take advantage of an early pay discount, especially if it’s a fairly minimal percentage
- If early pay discounts are offered to all customers, over time a business could earn significantly less than it might have otherwise collected
- Customers may come to perceive early pay discounts as “the real price” of goods or services and devalue them in the process
- Customers may compare terms and demand that their terms be equally favorable to others
- Early pay discounts may need to be fairly significant (5%, 10% or even more) to get customers to pay right away, whereas your factoring fee will likely range between 4-8%.
Invoice factoring offers a business tools that can stabilize cash flow right away, at a minimal cost. We have programs with factoring fees that start as low as 4 percent which is less than many customer early-pay discounts. In addition, instead of waiting a couple (or several) weeks for customers to pay, factoring clients can get free same-day funding on invoices factored with us, with advances up to 90 percent of an invoice amount.
How Invoice Factoring Can Fuel a Business Turnaround Strategy
For struggling or distressed companies, low cash flow is often the most pressing challenge to address. Speeding up cash flow is a top priority. Without adequate and consistent cash flow, a struggling business will not have time to remediate the problems with its pricing, personnel, marketing, purchasing, overhead and other operational areas that can turn a struggling company back into a thriving enterprise. In other words, speeding up cash flow gives a struggling business the working capital needed to put other components of its turnaround strategy into motion.
Invoice factoring enables businesses that invoice customers for payment on terms to collect payment on invoices immediately, without waiting for customers to pay, for a small fee (called a factoring fee). We can help distressed companies get agreements into place so they get an advance of over 90 percent of the face value of the invoice within 1-2 days of when an invoice is factored at a small cost (or factoring fee) which could be as low as 4 percent.
Here’s how the process works:
|DAY ONE||Client factors a $10k invoice||$10,000|
|Receive a 93% advance on the invoice||$ 9,300|
|Factoring company earns 4%||$ 400|
|3% held in reserve||$ 300|
|DAY 30, 45 or even 90+||Customer remits payment in full|
|3% reserve returned to client||$ 300|
In this example, factoring the invoice gives a struggling business access to as much as $9,300 on the same day the invoice is generated, and ultimately collects another $300 for a total of $9,600 collected. If the same business elected to extend a 5 percent within 14 days early pay discount to its customer instead, it might wait up to two weeks to collect any money on the invoice at all, and still only receive $9,500 of the invoice amount.
If the customer elects not to take advantage of the early pay discount, the business could receive the full amount but may wait 30, 60 or even 90 days to collect on the invoice. In addition, the business owner or bookkeeping staff may have to invest hours of time on collection phone calls and reminders before the customer pays.
Another advantage of choosing invoice factoring to speed up cash flow as part of a business turnaround strategy (instead of offering customer fast-pay discounts) is that the business can continue (or begin) to extend favorable payment terms to its customers as a marketing advantage. Since the business can collect on the invoice on the same day it’s generated, it does not have to spend time or resources chasing payments or worrying about how quickly a customer will pay.
Benefits of Our Invoice Factoring Services for Your Business Turnaround Strategy
Our goal is to help our clients grow their organizations from where they are today to where they want to be tomorrow. This mantra has impacted the way Corsa Finance tailors invoice factoring programs for our clients and how we do business. For distressed companies, our program can make invoice factoring even more effective as part of a business turnaround strategy, with potential benefits such as:
- No factoring minimums – clients only factor when it’s best for their business
- No long-term contracts – use factoring as a transitional, short-term or long-term solution
- Low factoring fees
- Competitive advances and fast funding
- Personal, professional customer care with a knowledgeable account manager
- Program tailored to the needs of the business instead of a “one size fits all” approach
A free, no-obligation quote is all it takes to find out how factoring invoices can instantly speed up and stabilize your organization’s cash flow, creating a consistent flow of working capital that enables your business to regain market share, keep customers, employees and vendors happy and put your company on a faster track for growth.
We would be happy to provide you with a free, no-obligation quote for invoice factoring services, even it you simply want to compare it with your current factoring agreement to be sure your business is getting the maximum benefit from receivables financing:
Thanks for explaining that it’s important for the managing partners to working with a CEO from the start of a business turnaround. My cousin is thinking about this for his company. Maybe he should start researching turnaround management services to find one that he can work with to start planning this.