Using Account Receivables Financing for Cash Flow

Small business owners often share a common road block while engaged in operating a successful business.  This hurdle to overcome is the needed cash flow to operate effectively.  Unless your in a cash business, most small business is put in the position of providing credit to the customers they work with.  Instead of getting paid the same day the service is performed or the product is delivered they often get stuck waiting 30 to 90 days to get paid.  One way to eliminate this cash flow crunch is by using receivables financing.  Although it is not a fit for every business it can solve the headaches of acting as a bank for your customers.

It really seems out of line to ask a smaller business to finance larger firms, but that is what has happened in today's business world.  It's simply what is expected these days and fortunately invoice factoring and receivables financing has provided a solution.  The way it works is the small business owner is permitted to take cash advances on invoices that the account receivables finance company has approved for funding.  Often the cost of taking the cash up front as opposed to waiting is very similar to 10 day quick pay terms of 2%.  The fee is taken as a discount off the total invoice amount, just like a quick pay discount that is taken advantage of by your customers.

To determine if receivables financing makes sense most companies need to consider how the business could change if every customer took you up on a 2% discount to have payment the same day the invoices were generated.  If all your customers starting paying within one day how could things change?  If the response is very little benefit would be realized by having cash on hand then your most likely not a fit for account receivables financing.  If you have lots of ideas that could generate additional sales and profit for the business then your most likely a fit for this financing tool.

We have found that cash intensive business industries such as technical staffing, medical staffing, and labor staffing typically fit very well with receivables financing.  Manufactures, Distributors, and Transportation also have good potential business efficiencies by having cash on hand.  Even if your industry is outside these areas its fairly simple to determine if you fit for this working capital solution.  If your business can operate more effectively by getting paid within one business day for every sale, then you should take a look at financing your receivables.

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