Saving money is always a smart business strategy. It means you will have more money at your disposal for the things you need to buy for your business. The extra money you save from one place can also be deposited into a business emergency fund for unexpected expenses. The overall result is greater financial vitality and more opportunities to grow your business.
Where and how can you start making changes that will ensure strong cash flow and save you money? Invoice factoring is one of the best ways to begin.
Factoring gives you a cushion of cash to keep on hand
Think about it: One of the biggest threats to cash flow is unpaid invoices from clients. If you aren’t being diligent about collecting payments from your customers, you could end up facing a serious cash flow situation.
Unfortunately, no matter how diligent you are about collections, late customer payments are a business reality. Payment delays may not be an issue if you have a sizable savings cushion. But if your company has a zero account balance, one unpaid invoice could mean immediate danger.
Factoring pays you upfront for the invoices your customers owe money on, thereby giving you the working capital to cover your business expenses. With strong operational funding in place, you can avoid a variety of unnecessary costs, including:
- Overdraft fees on your checking accounts;
- Interest charges or late fees on your credit cards;
- Late fees from suppliers; and
- Penalties incurred if you miss deadlines for filing taxes.
Aside from slow-paying customers, think about times when cash flow can be particularly tight. In the months just before the holidays, retailers need more inventory from their suppliers to prepare for a surge in sales. However, if the due dates on your supplier invoices come before your sales actually occur, you may struggle to pay bills by their deadlines. Invoice factoring lets you plan ahead for and effectively manage those tight times, thereby decreasing your chances of facing late payments and other penalties on past due invoices.
Receiving prompt payment on a customer invoice involves little more than logging into the factoring company’s online portal and selecting the invoice you want the factoring platform to pay. Once you select an invoice to clear, the money is deposited directly into your bank account.
It is an affordable and convenient funding solution and eliminates the need to take on a formal loan or incur debt resulting from late fees and penalties.
Avoiding late fees and penalties deserve your urgent attention
Regardless of the size of your business, late fees and penalties aren’t just an inconvenience. Over time, they can accumulate and threaten the viability of your business. Late fees and penalties could potentially paralyze your cash flow, leaving you struggling as to how to keep your business operational or pay employees, suppliers and vendors.
If you’ve already tightened spending and you’re diligent about making clients pay on time — good for you. These two small changes alone will help your company’s long-term cash flow. To protect your business from cash-flow issues, try to maintain an account balance equivalent to at least two months of operating expenses. That way, even if your cash flow takes a hit, you have a strong reserve in place to safeguard your business.
Avoiding late fees and penalties are a big part of maintaining a financially robust business. When you choose invoice factoring as the cash-flow management solution for your business, you can take advantage of payment discounts, avoid late fees and penalties, and use your improved cash flow to save money. Contact Interstate Capital for a factoring rate quote today.