Cash flow can be an enormous issue for fast-growing small and medium-sized businesses selling on open credit terms. As a company ramps up its number of orders, it can suddenly find itself out of cash. It seems like these businesses are taking three steps forward, then two steps back. Why?
Sales Process and Cash Flow
A typical sales process begins with expenses: Identifying the correct prospects and taking time to close the deal are all part of an investment to earn new business. Once orders are received your business has to begin hiring new hands or providing goods, leading to further expenses. If sales are rising rapidly, these expenses can compound, especially if no financing mechanism is in place.
As more sales are closed, greater inventory and accounts receivable levels are required. Waiting for payment while trying to accommodate continued business growth can leave your bank account empty.
Factoring Flexibility
Rapid growth should be a boon to companies, and they shouldn’t let cash-flow issues prevent them from moving forward. Factoring is an ideal solution because it can pay out as soon as the order is completed instead of the typical 50-60 days it takes a customer to pay. This helps to close the loop faster, and frees up cash flow to pay for new orders.
During periods of decreasing sales the need and opportunity for factoring will be lower due to the lower expenses from falling sales or an overall decrease in invoices in general. This is one of the benefits of factoring with Evergreen: flexibility to factor only the invoices you need. If sales and expenses fall, you have the option to stop factoring or only factor a few invoices until growth begins again.