Solutions for your small business cash flow

Cash flow is king and vital to the financial health of your small business. When you don't have money coming in, your cash flow will start to dwindle as you may find that you are paying all of your lenders in a timely manner to sustain your business credit rating. The problem with paying out your invoices while you are waiting for your customers to make their payments is that you won't have working capital to invest into your inventory and other business needs. There are numerous solutions that will improve your cash flow problems but only one solution tends to stand out far above the rest and that is the process known as invoice factoring.

Invoice factoring, also called accounts receivables factoring is a great solution to maintain control over your cash flow. What happens is you contact a factoring firm and they will take over your invoices. Within 24 hours of creating the invoice, the factoring firm will supply you with about 80% of the total invoice amount. They will then work with your customers to collect the rest of the funds and send it to you. Typically you will have the money 30-60 days sooner by using a factoring firm instead of trying to collect the funds on your own.

Why do you need to use invoice factoring? The biggest reason that stands out is the ability to acquire money for your orders within a day or two versus a month or two. Since you won't be waiting on your customers to pay their bills, you can focus on paying your bills to you vendors so you don't hurt your credit rating. You can also order the supplies you need to maintain your business. Another big reason for invoice factoring is to start taking on larger orders.

One large order in the past may have wiped out your entire cash flow. Due to the amount of money it costs you to purchase the raw materials and then manufacture them, you may have turned down large orders in the past because you simply couldn't afford to take them on. With invoice factoring, you will only need to dip into your cash reserves for a few days versus a few months. This allows you to produce one large order and still have money to continue producing all of your smaller orders like normal.

Invoice factoring is great for any small business as you may have limited staff members to begin with. Having one or two staff members handle the invoices and try to collect on the funds is a hard process and it will be incredibly hard for you to task other assignments to this person. Collecting money is not always easy for a lot of people, which is why you need to consider invoice factoring as it allows you to focus on running your business and someone else can focus on collecting the funds from your customers.

If you don't want to pay a factoring firm to come in and take over your invoices, you can always try working out arrangements with your customers. A great solution you have is to require a down payment at the time of sale and then enroll the company or client into am automatic deduction payment plan. This allows you to draw out the money from the customer in a timely manner and you also get the luxury of having a payment up front so your break-even costs are met.

Try offering discounts to your customers that make their payments in a timely manner. This is a great way to keep your cash flow strong and to strengthen your relationships with your customers.