Few businesses can say they don’t want improved cash flow. From budget deficits to delinquent accounts, here are five signs your business might be more profitable by factoring invoices instead of waiting on customer payments.
Getting paid more quickly can help entrepreneurs, startups and small businesses in a big way by improving cash flow and supplying the cash-on-hand needed to grow.
Small businesses often dream of landing a big account but find that large corporations hold all the cards when it comes to setting terms, including pricing, profit margins and timing of invoice payment. Slow-paying customers make for fast cash flow drains that can hurt a small business, erode profits and even threaten viability.
The good news is that there is more than one way to improve cash flow. Factoring invoices can put the power back in your hands and give your organization the money it needs to become more profitable and grow more quickly over the short or the long term.
5 Signs a Business Should Consider Factoring Invoices to Become More Profitable
- Discouraged by Delayed Payments
By the time you make a sale, the math is already upside down. When you consider that you have incurred costs for marketing and advertising, manufacturing, shipping, supplies, transportation, payroll and all of the other costs of doing business, it’s easy to see why it would be discouraging to wait for customers to pay on time, let alone waiting on customer payments that are past due.
Analyzing 409 companies from Standard & Poor’s 500-stock index puts the average time to pay suppliers at 46.5 days, but also notes that small businesses wait even longer to get paid, two months on average. Delayed payments mean delayed reimbursements for the costs you’ve incurred as well as delayed reinvestment in order to grow your business.
When you factor invoices, you collect payment immediately. This empowers you to maintain more consistent cash flow and ensures that you will have money on hand to meet expenses.
- Dealing with Budget Deficits
When you are waiting for customers to pay, cash flow challenges can compound. If you make late payments, you may incur penalties that further erode your company’s profits. When you factor invoices, you gain immediate access to the money customers owe you. As a result, you can pay your creditors more quickly. Knowing that you will have the cash needed to pay can even give you leverage with suppliers that will enable you to save money by negotiating more favorable terms with vendors or allow you to take advantage of volume discounts. When you cut your costs and save money, you improve your profit margins!
- Desire to Limit Risk of Defaulting Customers
Slow-paying customer accounts are bad enough; but what happens when your customer can’t pay at all? Dealing with bad debt is one of the costs of doing business that can cut into your profit margins in a big, bad way.
Bad debt is a big problem. In 2010, US businesses placed $150 billion with collection agencies, who were only able to collect about $40 billion of that total (www.debtcollectionanswers.com). The SBA (Small Business Association) reports that only about 1/3 of all new businesses will still be around after 10 years. If a customer has filed for protection or gone out of business, even costly recovery efforts may prove fruitless.
Factoring invoices with a non-recourse factoring company is one way to protect your company – and your profit margins – from the negative impacts of bad debt. Non-recourse factors assume the credit risk for factored invoices, which can reduce or even eliminate your organization’s risk from bad debt.
- Looking for Competitive Advantages
Being able to improve profits and better manage cash flow can lead to additional perks that can help your business become even more profitable. Factoring invoices gives you access to the money locked down in customer receivables right away – without waiting for customers to pay. Since waiting on customer payments is no longer a problem, you can create a competitive advantage for your organization by extending more favorable terms to your customers.
- Pursuing Bigger Opportunities
Since factoring invoices allows you to reinvest in your business more quickly, you can also grow more quickly. Whether you want to take on more work simultaneously, pursue bigger projects or land bigger fish, factoring gives you the ability to put more capital to work to promote and market your business, to expand, or to pay for supplies and the up-front costs needed to serve larger accounts or take on more jobs at the same time.
Request a free, no-obligation quote and expedite cash flow by factoring invoices instead of waiting on customer payments. Contact us at 855-882-6772, speed up the process by applying online or email us using the short form below.