Having “too much business” is a problem all business owners dream of having. But what happens when a customer comes to you an order or job that you don’t have the capacity or capital to fulfill.
Let’s take a look at the underlying causes of issues like this, and what options business owners when faced with these opportunities.
You Have a Working Capital Problem
Working capital can be defined as the amount that your current assets exceed your current liabilities, though many of us consider it akin to how much cash we have in our “business pockets” at any given time. Obviously, if you don’t have cash (working capital) to purchase supplies and cover labor, you can’t fulfill new orders. However, it’s important to note that working capital does not directly relate to the profitability of your business. It’s possible to be incredibly profitable and not have working capital, but working capital is a major indicator of the health of your business. You could have a profitable business, but no working capital if you spent your money on an emergency expense or just took care of payroll.
Sluggish Cash Flow Causes Working Capital Issues
Cash flow is the amount of money coming into your business. Again, it doesn’t directly relate to profitability. You could be profitable, but have customers who pay their invoices very slowly or you could have a business that generates revenue but is subject to seasonal lulls. Either way, bottlenecked cash flow can leave you short on working capital. A recent survey from the Federal Reserve Banks shows that 22 percent of small businesses agree managing their cash flow is their biggest challenge and 37 percent of businesses that apply for financing do so to address immediate cash flow issues.
Failure to Correct the Bottleneck May Strangle Your Business
Cash flow issues contribute to 82 percent of business failures, per Entrepreneur magazine. They’re actually quite probelmematic. While the obvious implication here is that you can’t currently afford to take on more work or process an order, a cash flow bottleneck could just as easily prevent you from covering payroll, paying your bills, addressing an emergency expense or growing your business.
Invoice Factoring is a Debt-Free Alternative to Financing
It’s with this in mind that many businesses start looking into financing for large orders. This includes options like lines of credit and bank loans. Unfortunately, there are two huge issues with those solutions. First, they all result in generating business debt. You’re taking out a loan that you must repay over a period of time, which can lead to being caught in a cycle of debt; always paying on it but never fully paying it off.
Secondly, many businesses simply don’t qualify for financing, since criteria typically involves having good credit, being in business for years, and having adequate cash flow. Invoice factoring is different.
Invoice Factoring Comes with a Multitude of Benefits
- No debt. Invoice factoring involves selling your unpaid B2B invoices to a factoring company. There’s no debt to pay back because it’s not a loan.
- Your credit isn’t the most important consideration. The factoring company will check into the credit of your customers—those who are responsible for paying the invoices. With this in mind, you can qualify even if your business doesn’t have good credit.
- Most businesses qualify. Because qualifying for invoice factoring centers around the invoiced company, many businesses will qualify for it.
- Flexibility. You can choose which invoices to factor, and when to factor them. That means you can leverage it right now to take on a large order and then not leverage it again until you have another large order or another pressing need.
Interstate Capital Can Help You Take on More Work
Interstate Capital helps thousands of companies solve their cash flow issues every day by shortening the time between completing work and getting paid for it. If invoice factoring sounds like the ideal solution to you, get an instant funding estimate.