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Factoring your Cash Flow

Posted by Gil Oliva on Wed, Mar 26, 2014 @ 08:06 AM

Eliminating a Cash Flow Crisis – How Invoice Factoring can Help

blog_3.26Invoice factoring is a highly effective tool when it comes to helping with cash flow management. However it is essential that the cash flow cycle for your company, and your industry, is evaluated and understood.

We all know that monitoring cash flow is critical for success. Once cash flow is managed, decisions can be made about whether or not invoice factoring is the most effective answer to help your business achieve optimum cash flow goals.

There are many reasons for unpredictable cash flow. Seasonal demand and sales usually generate a healthy flow of cash, but this can be followed by a cash flow decline during off peak periods. Maintaining enough available cash to cover a shortfall in requirements makes invoice factoring an extremely viable solution. Understanding the periods when cash flow is a challenge helps a company to decide how much it needs to utilize the services of an invoice factoring company.

Identifying and forecasting potential problems with cash flow means it is easier to find an answer. A simple comparison of unpaid purchases to sales per month will give a ballpark indication of your cash flow health. Shortening the cash flow cycle will certainly help.

How can you do this? Do you have cash flow best practices in place?

  • Consider all your accounts receivables, and the differing credit terms you offer your customers. Look at ways of effectively managing the credit terms so you are offering a uniform length of time for payment.
  • Check how efficiently you are issuing invoices. Do you delay sending out invoices until goods and services have been delivered? If so you could be adding several days to cash flow collection and conversion.
  • How healthy is your cash flow collection procedure? Make sure you have a uniform method when it comes to late payment.

It is important to take a careful look at cash flow peaks and troughs. Examine how long your company can manage if cash flow decreases dramatically, and what sort of injection is needed to stay afloat. Are there any other sources your company can turn to in a cash flow crisis?

Similar to the decision regarding the amount of inventory to hold, a company must decide upon the size of cash balance to keep on hand. In many situations, the cost of factoring is worth the knowledge that operational, and other costs are consistently covered.

Once you have decided on accounts receivables financing through an invoice factoring company, you may be concerned that the factor is now collecting on your invoices. However, many of your larger customers will be aware of the factoring process. In fact, the US Government has a specific process (and form) in place to allow for payments to factoring companies. Companies have no issues with paying a factor, and may well be factoring their own invoices also. Your customers are picking you to supply the goods and services because they are aware of your knowledge and ability to supply the right product or service on time. They are less concerned with the fact that they pay a factor for those goods or services. Good invoice factoring companies will do an exemplary job at contacting your customers and keeping in touch with them, and you throughout the process.

Allow Bay View Funding to answer any questions you may have about the factoring, and how we can help you manage your cash flow.

Invoice Factoring Guide  

Topics: About Invoice Factoring, Financing Government Contractors

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