subject: Invoice Finance – Boosting Cash Flow to Grow [print this page] Invoice Finance Boosting Cash Flow to Grow
Invoice finance gives a boost to smaller businesses in need of cash. Cash flow is a critical problem many smaller businesses experience occasionally. With the current economic problems, this is becoming more frequent. With customers fewer and far between, no business owner wants to lose a potential job due to a lack of cash for supplies. It can become a self-defeating cycle. One general rule is for businesses to keep several months worth of cash available to deal with hiccups and slow receivable periods. However, with the economy, many find their cash depleted.
Many small businesses are turning to invoice finance to deal with cash flow issues. They cannot afford to wait for the cash to come in from their open accounts. They need operating capital to keep supplies and pay employees. With this form of financing, the small business owner can capitalize on their strong customer list. A company that specializes in this form of financing will review your open invoices and look at the customers' credit. If they feel a customer is a good risk, they will advance you a good portion of the amount of the open invoices. Then once the customer pays, they will take a percentage of the total and give you the rest. The percentages vary from finance company to finance company.
Invoice finance may seem expensive. You are paying a portion of your profits to these finance companies. However, if you lose business or have to wait to pay employees, you may find yourself losing more than the amount of those fees. Some businesses use this form of financing regularly and they integrate these fees into their cost structure. It keeps their cash flowing and their business growing. If a customer ever defaults on an invoice, the small business must pay the amount advanced back to the finance company plus a fee. That is why the customer's credit is so crucial to the process.
Invoice finance may not be the right strategy for some companies. Without a strong list of creditworthy customers, the finance companies will not advance the cash you need. For those that have small amounts of dozens of invoices, the fee structure may not work to your advantage since they base the fees on invoice and not customer total. However, it is worth a look if you have a cash flow problem. Freeing up the cash can be the difference between going forward and shutting down.
