One Way to Fix your Business Cash Flow Problems

May 5
13:04

2010

Marco Terry

Marco Terry

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Does your company have cash flow problems? Read this article to learn about a way to olve them.

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Sooner or later,One Way to Fix your Business Cash Flow Problems Articles almost every business will run into cash flow problems. Although ideally you want to prevent these problems, this is not always possible. Part of running a business involves, at times, living a little bit on the edge. Sometimes, you go a little farther than you should have.

One of the more common causes of cash flow problems is slow paying clients. These happen because most commercial sales are not paid immediately, but rather 45 to 90 days after the product or service has been delivered. Few business owners can afford to wait that long to be paid, though. There are constant business expenses that have to be covered.

Common wisdom suggests that companies should keep a cash reserve that is large enough to cover expenses while waiting to get paid. This works beautifully in theory but seldom in practice. The truth is that most small companies keep inadequate reserves.

One way to fix this problem is to complement the cash reserves with business financing. Selecting the right type of business financing to help with this problem is critical. Most business owners will first try to get a business loan. They soon find that loans have difficult qualification requirements. The business must have a profitable track record and impeccable financial statements. Also, the business and the owners need to have substantial assets. Few will actually be able to get the loan.

However, a business loan is not always the right solution. You can eliminate the cash flow problem from slow paying clients by financing your invoices. Invoice factoring provides you with a funding advance on your invoices. This enables you to cover business expenses while waiting to get paid. The transaction is facilitated by a factor, who buys the invoices from you (at a discount) and hold them until maturity. Since the factor buy invoices, their biggest concern is that the invoice will be paid. Although the factoring company wants to make sure the company selling the invoice has no major problems, they are more interested in the credit worthiness of the company paying the invoices. This makes factoring an ideal solution for small companies who don't have a lot of credit or a long track record - but have a solid list of clients.