As most business owners already know, unresolved cash flow problems are among the top reasons why many businesses don’t make it past the first year. Startup businesses, especially, are prone to encounter cash flow gaps seeing it usually takes 30 to 90 days on average for their customers to pay.
As a result, they’ll experience cash shortages, making it harder for them to meet their day to day expenses. Fortunately, there are invoice financing startup options that a new business can apply to resolve this issue.
For those who don’t know, invoice financing is a type of financing where businesses can get cash upfront in exchange for their invoices. The financing companies buy these invoices and handle the collection of payments, depending on the agreement.
The financing company will provide at least 85% of the total value of invoices. What makes this a good choice for businesses is that you don’t have to wait weeks for clients to pay you. With the funds you receive, you can pay your suppliers and take on more opportunities without delay.
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How can Invoice Financing Solve Cash Flow Issues?
A major factor that hinders business growth and expansion are problems associated with cash flow. You need a stable cash flow to help your company meet both expected and unexpected expenses.
Without it, you’ll be putting the life of your business on the line. Eventually, you’ll need to take on more debt, which can further endanger the stability of your cash flow.
With invoice financing, however, you can avoid cash flow shortages that arise early on.
Cash Flow Problems You Can Solve Using Invoice Financing:
1. Late Payments
It’s expected that some customers will be late with payments. According to many companies, delayed payments is one of the major causes of cash flow inconsistencies in their business.
With lesser cash on hand, it’s harder for them to finance other orders, which can cause them to cancel an agreement. This can even lead to people losing faith in their business, which, if this occurs, will result in a loss of sales and profitability.
However, with invoice financing, they can avoid this from happening. Instead of waiting for weeks to receive payment, they simply sell their customer’s invoices to invoice financing companies and receive immediate payment.
With the money they receive, they can continue with their company’s operation and accept other business opportunities.
2. Inefficient Payment Collection Process
A lot of companies do not have enough staff to manage late-paying customers. This makes it one of the biggest hurdles they face in managing their cash flow. That’s why many of them benefit immensely when they turn to invoice factoring companies who help them with this.
Invoice factoring is a type of invoice financing where a business sells its invoices to a factoring company for cash. With this arrangement, the factoring company takes complete control over the ledger of the business.
They handle the collection of payments, and once invoices are paid, they deduct the cash you received in advance plus their fees. Essentially, it’s a win-win solution for all parties. You get cash in advance, and at the same time, you don’t have to worry about chasing payments.
3. Changing Supplier Payment Terms
There’s no telling what the future holds. With that, your suppliers may tighten their payment terms and ask you to pay in a shorter period than usual. However, if your terms are 30 or 90 days after delivery, this can put you in a tight spot. You’ll be forced to use the cash you have on hand to pay the suppliers, which can create discrepancies in your cash flow.
In this situation, invoice financing is the perfect solution since it frees up cash tied up on the customer’s invoice. Once an invoice is issued, you can sell it and receive the cash you need to pay your suppliers.
4. Lack of Financing Options
Businesses always need additional financing to support their growing business needs. However, banks are also tightening their control over the loans they grant to small businesses.
Thus, small enterprises also find it difficult to obtain the financing needed to take advantage of growth opportunities that comes their way.
On the other hand, Invoice financing provides small business owners with a flexible financing option. It’s also cheaper than most loans offered by the bank, and companies can use the funds they receive any way they want and need.
Using Invoice Financing Startup Options to Solve Cash Flow Issues
Invoice financing startup options are a great financing solution for companies looking for immediate access to cash flow.
With one, they can pay their suppliers, cover business expenses, and take on new opportunities. It also helps them solve cash flow issues and prevent bigger problems from arising.
In short, it’s a financial solution that companies find beneficial as they grow and expand.
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