Bottlenecks are Costly
More than 60 percent of small businesses are struggling with cash flow issues according to a recent study by Intuit. Over half of the businesses have lost at least $10,000 because their cash flow issues left them unable to accept a project or complete sales, with the average amount lost by small businesses totaling $43,394. About one-third are left unable to pay bills, including vendors, payroll or even themselves.
Slow Payments are a Common Cause
Before you jump into solutions, take a moment to trace what’s happening with your cash flow. Companies can experience it for many reasons. Sometimes, it’s a lull in activity or seasonal shift, but other times you have to follow the cash from the time the work is done until it comes into the business. Arguably, the biggest culprit here is going to be slow-paying customers. Data from Intuit concludes that the average small business has more than $50,000 in outstanding deliverables. In other words, they’re doing the work and invoicing their clients, but their clients aren’t paying up in a timely manner.
Factoring Eliminates Bottlenecks Caused by Unpaid Receivables
If your business is one of the many impacted by slow payments coming in from customers, you have options to help unclog the bottleneck. Some businesses turn to financing solutions, such as loans and lines of credit, but that can create a debt cycle, and some businesses will either not qualify at all or won’t get enough cash.
Invoice factoring is different. Instead of borrowing money, you simply sell your invoices to a third party, known as a factor. The factor pays you for the invoices right away and then collects from the customers. Depending on your agreement, you don’t necessarily have to sell all your invoices, nor do you have to agree to factor for any length of time. This makes factoring an ideal solution for those experiencing a temporary cash flow crunch as well as those coping with a persistent bottleneck.
Approval for Factoring is Quick and Easy
Again, factoring is not a loan, so your business financials and credit score are less important than they would be if you were applying for traditional financing. While you do need to supply documents, the factor is more concerned with the creditworthiness of the business which owes you money. In fact, when you work with a factoring company like Interstate Capital, their team of experts help research potential clients, so you know which customers are likely to make good on their invoices, and you can accept work with more confidence.