Using Your Customers Credit To Finance and Grow Your Business

Posted by Shelton05 on December 8th, 2021

Most small and medium-sized businesses that sell to commercial clients develop cash flow problems sooner or later. Most of these problems stem from the fact that companies have to deliver their products/services immediately but have to wait up to 60 days for customers to pay their invoices. On the other hand, the company still needs to pay many expenses quickly. Payroll must be met. Suppliers and rent have to be paid on time. This situation creates a timing gap between revenues and expenses, which can create serious cash flow problems. Unfortunately, business owners are usually caught in a catch 22. Large credit worthy customers will take their business elsewhere if you don\'t give them up to 60 days to pay.

There are three ways to reduce the timing gap and improve the cash flow of your business. One alternative is to accelerate your revenue by asking customers to pay sooner. Many companies are willing to offer a 2% discount on their invoices to customers that pay in 10 days or less. Another strategy is to delay your expenses. For example, ask your suppliers to give you 30 to 60 day payment terms. However, to get 30 to 60 days payment terms, your company needs to have a good commercial credit. Using these two strategies will allow you to better match your revenues and expenses. The problem is that ultimately, you are leaving the fate of your company at the mercy of its clients and vendors.

There is a third alternative to solve this problem. You can accelerate your revenues using an invoice factoring facility. Factoring allows you to finance your invoices from large credit-worthy customers - basically leveraging their credit strength to get financing for your own company.

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Factoring works by using a financial intermediary, called a factoring company, that buys your invoices and provides an upfront payment. Your company gets immediate funding that can be used to cover current expenses or invest in growth opportunities. Once the factoring company buys the invoice from your company, they hold it until your customer pays. Once your customer pays the invoice, the transaction is settled. The factoring company charges a small fee for this service.

Obtaining factoring financing is relatively easy - your company needs to be free of problems and it needs to work with credit worthy customers. And, the financing line is directly tied to your sales\"Science, enabling it to grow dynamically as your sales grow.

Factoring is an ideal business financing solution for companies whose biggest challenge is that they can\'t afford to wait 60 days to get paid by customers.

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Joined: July 13th, 2019
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