Any business that experiences a sharp increase in sales will generally experience a cash flow shortage. Like the trucking company that just got a big account and now has to hire more drivers and pay more fuel for their trucks on a weekly basis, then wait 60 days for loads to be paid. The runs are uninterrupted throughout the day, but the cash flow is not.
Working inventory must be purchased to ship the loads, regardless of what was ordered to fulfill the contract from the fact that the incoming cash came from loads made 3 months ago when sales were lower. The scenario is very similar with fast-growing service companies, which typically find themselves short of staff to service their sales as they scale to higher levels.
There are numerous remedies for companies experiencing a cash flow crisis, including various forms of debt and equity financing. However, the current slowdown has made banks increasingly reluctant to fund loan proposals that are not watertight, while equity financing, with the loss of control that joint ownership of a company implies, is not. suitable for all companies.
There is another type of financing increasingly common called Accounts Receivable Factoring. While it is true that invoice factoring has existed for hundreds of years, initially coming from the textile industry, its popularity is growing very rapidly in all sectors of the industry. The reason for its increasing popularity is that the company that sells the accounts receivable will receive a cash injection of up to 90% of the face value of their invoices with 48 hours of the invoice instead of having to wait 60 or 90 days for collect the bill.
The Accounts Receivable Financing Company will generally remit the initial amount up to 90% of the face value of the Invoice and then send the balance of the reserve once the client pays the invoice, minus the small service fee for the use of money. The money that is advanced can be used for whatever purpose the business deems appropriate: payroll, inventory, fuel, or maintenance, for whatever they need the money for.
There are many alternatives to bank financing today, do your homework to find the best option for your situation and keep an open mind. Banks are not always the best answer and they are certainly not the only answer. Today’s financial brokers have a wide range of products to suit most circumstances and the best ones are up to date with the latest trends and options so they can place their financing with the best product on the market. Most commercial finance brokers have access to funds for accounts receivable financing, export factoring, purchase order financing, commercial equipment loans, and commercial real estate mortgages.