The definition of cash on hand is simple: it’s the total amount of any accessible cash. It allows businesses to pay for standard operating costs like your rent or mortgage, payroll, monthly utility bills, etc. Your cash on hand also determines what projects your business can take on, or which financial hardships can be absorbed without taking on additional debt.
But what happens when you don’t have enough cash on hand to operate your business? One option that is quick, easy, and flexible is accounts receivable financing, or factoring as it is sometimes called.
Understanding Accounts Receivable Financing
Nearly every business has contracts with vendors to purchase supplies, materials for production, etc. This side of your ledger is known as your accounts payable. However, the receivable side of your ledger may be a gold-mine if you take advantage of invoice factoring, also known as accounts receivable financing.
Accounts receivable financing is one of the oldest forms of business financing and one that is accessible to nearly every business with a client base. One of the greatest benefits of this type of financing is you are not going into debt to get the cash you need. The process of accounts receivable financing, or factoring is fairly simple: Business owners sell their invoices to a factoring company. The factoring company purchases your receivables at a discount and you get cash before the invoice is paid by the customer. Basically, you’re exchanging the risk and time necessary to collect on invoices in return for getting a quick infusion of cash flow into your business. Once you’ve factored the invoice, the factoring company will then collect the payments due on those invoices since you’ve transferred the “ownership” of the payment to them.
Cash Flow Benefits Created by Factoring
If you’re like most business owners, you have contracts with your customers allowing them to pay over time. This time frame can be as short as 15 days or as long as 90 days, and in some cases may be even longer. While giving customers time to pay may increase your sales, you could also face cash flow problems as a result of offering this benefit. Many businesses are surprised to learn they are eligible to take advantage of this unique method of financing to increase their cash flow. Some industries include:
- Transportation – there estimates of 1.2 million trucking companies in the United States. What you may be surprised to learn is that most of these companies are relatively small; of that figure 97% operate 20 or fewer trucks, according to truckinfo. Shipping and logistics companies are generally performing services long before they get paid for them. These delays can cause serious cash flow problems; cash necessary to maintain a fleet, purchase fuel and pay drivers. This is one of the reasons more of these companies are turning to invoice factoring as a way of ensuring their cash needs are met.
- Manufacturing – this is a cash-intensive business. You need cash on hand to purchase new materials to ship out your orders. If you’re like most manufacturing companies, you offer your customers terms; therefore, the gap between purchasing material and getting paid is significant. Using a factor, you can exchange your completed project invoices to take advantage of Hitachi Business Finance’s A/R financing program. This allows access to much-needed cash today and keeps your business operations funded. Fortunately, with invoice factoring, you can get cash for your invoices once you deliver the goods.
- Marketing and Advertising – growing your marketing and advertising business takes time and often requires cash infusions. Thanks to tight banking restrictions, you may find it challenging to get a traditional loan. For your business, working with a financial partner who understands the unique challenges you face can make the difference between growing your business and closing the doors. Hitachi Business Finance offers a different option: Instead of going into debt to keep your books in the black, we’ll buy your invoices at a discount and give you the cash you need today.
- Staffing Agencies – According to bullhorn, 91 percent of firms expect to see at least 10% growth in 2016.As a staffing agency, you have to pay the people you have put out on assignment, continue marketing campaigns, and pay your regular expenses like office rent and utilities. This can be challenging since your business model works like no other; you place staff members and once they’ve started working, you invoice your customer. This type of billing model can create a cash flow gap causing your income statement to be awash in red ink. Fortunately, it doesn’t have to be this way; your invoices can be partially paid within days of issuing them ensuring you have the working capital you need to continue your daily operations.
Customized Solutions to Meet Your Needs
At Hitachi Business Finance, we understand every business has unique needs and there is no one-size-fits-all solution to your funding needs. Business owners all need cash flow to keep their day-to-day operations functioning. Additionally, business owners who are consistently late making payments to vendors will likely have problems working with new vendors because their credit will take a hit. Accounts receivable financing is specifically designed to help you better manage your cash flow without harming your credit.
Whether your business is just getting started or you’ve been in business for a decade or more, traditional loans are not always an option. Traditional loans often have onerous restrictions on how you can use funds, may require personal guarantees, and may result in you giving up equity in your company. Factoring has none of these restrictions; you can use the cash you get from your invoices in any manner you deem appropriate. Since invoice factoring isn’t a loan, you get the money you need to keep your business operating without going into debt.
If you’re ready to improve your cash flow with accounts receivable financing, contact Hitachi Business Finance today. You can reach one of our Financial Advisors by contacting us at (248) 658-1100, or you can download and fill out our simple to use accounts receivable financing application. We can help by providing you with the cash you need without the added burden of debt. Contact us today and learn more about the solutions we offer for your business.