For many SMBs, their ability to grow is limited mostly by their cash flow – or lack thereof. It’s easy for a smaller operation to get into a situation where they are, on paper, doing fine. But, in reality, they have so few actual liquid funds that they cannot afford to re-invest in themselves or otherwise spur growth.
If this sounds like your situation, accounts receivable financing companies may have the solution you need. First, however, let’s look at the problem a little more closely.
The Liquidity Problem, Or How Banks Can Hold You Back
In an ideal world, a business provides a particular product or service, gets paid, and uses that payment to both pay their bills and invest in their future growth. Of course, this doesn’t always happen, and too often it revolves around that part about getting paid.
In B2B sales and, particularly, in B2G sales, it’s extremely common for payment to be delayed by weeks or months. Business invoices are typically only paid every 30-60 days, and government invoices can take 90 days or more to come back. This leaves the company with a lot of paper assets in their accounts receivable, no little or no actual cash on hand.
Lacking liquid funds, they can then easily get into financial trouble from even minor mishaps.
In theory, they could go to a bank for a loan, but this creates new problems. For one thing, loans incur interest, and they end up having to pay extra to become liquid again. Also, the amount they are allowed to borrow may be sharply limited by their small size. Even if they’re doing a lot of business on paper, the bank may be unwilling to advance them more cash.
That’s when accounts receivable financing companies can make the difference.
The Benefits of Invoice Factoring
Invoice factoring is an alternative financial solution for businesses in this situation. Simply put, they go to a financing company and receive a loan against their own accounts receivable. Their invoices become the collateral, as well as determining how much they can borrow.
Or, in some cases, the financing company might simply buy the invoices outright, usually at around 80% of their face value.
This allows a company facing liquidity problems to quickly increase their cash flow, pay their bills, and reinvest in themselves – even if their customers are slow in offering payment. There is some loss of value, but that is counterbalanced by the ability to have liquid assets in-hand when needed.
Let Camel Financial Help
Camel Financial is one of the nation’s leading accounts receivable financing companies. If you’re facing cash flow problems, and you’re being held back by your bank’s loan terms, contact us to discuss your alternatives.