If your business is typically busy during certain months of the year and slow during other months, take a look at how invoice factoring can help you smooth out your cash flow. If you have been in business a while, you have probably seen how a seasonal business can face serious financial challenges during the slow season. While money only comes in at certain times of the year, your business has expenses that must be paid year-round.
Surviving the slow months requires planning ahead. Take, for example, a landscaping company. If you live in a climate that endures ice, snow and cold weather three or four months a year, the company probably earns much more money during the warm months. When money is not flowing into a seasonal business during the slow months of the year, waiting for an outstanding invoice to be paid can be tricky.
If a company is relying on outstanding invoices to be paid, but customers hold the invoice for 60 or 90 days, the business can suffer. Invoice factoring can help a seasonal business survive its slowest time of year.
Invoice factoring, also known as accounts receivable or AR financing, enables a seasonal business to sell its outstanding invoices to a factoring company in exchange for early payment. The invoice factoring company immediately pays its client a large percentage of the value of the invoices, and then pays the balance, minus a small factoring fee, when the client’s customers pay their bills. The invoice factoring company is reimbursed when the invoices are finally paid by the customers. The business owner won’t have to wait 30, 60, or even 90 days to get paid and can use that early payment for operating expenses and reserves to set aside for strategic growth.
For a seasonal business, accounts receivable factoring is quick and easy. Much different than a traditional bank loan, invoice factoring does not require a seasonal business owner to apply for a loan and pay interest on the loan until it is paid in full. Seasonal business owners appreciate the fact that accounts receivable factoring does not require the accumulation of debt.
Successful seasonal business owners are skilled at keeping operational costs at a minimum during their slow season. When you utilize seasonal employees, you don’t have to pay them when your business is slow. However, if you have regular leases, company vehicle loans, and year-round employees, accounts receivable factoring can be used as an effective cash flow management tool without falling into debt during the slow season.
Seasonal business owners also often use their slow months to operate another business. For example, the hypothetical landscaper might run a snow plowing business. With more than one business to manage, seasonal business owners often have very little time for collecting outstanding invoices and tracking payments. A well-established factoring company with an in-house team of collections professionals will help the business owner with that collections chore.
Invoice factoring can make a difference for business owners worried about weathering the slow season. Contact Interstate Capital now to find out how factoring your invoices can be an effective cash flow management tool for your seasonal business