Anyone who has started a business knows that there are definite cash flow challenges involved. A business can be expensive to start, since there are a variety of things that one needs and costs that are incurred:
- Fees for licenses from the state and local governments.
- Consultation fees for attorneys and other professionals that help you get things set up legally.
- Buying or leasing a facility.
- Renting or buying equipment.
- Hiring and paying personnel.
- Purchasing raw materials or inventory for your business.
- Fees for setting up such services as water, heat, electric, Internet, phone. (And do not forget the need for adequate cash flow
- to make regular payments.)
- Software costs for programs needed in such areas as accounting, supply chain management and other areas of business
- Advertising and marketing campaigns.
And these are just some of the costs. A start up business requires a great deal of money to get going. And many people fulfill this need through bank loan financing. Unfortunately, there are cases where the bank does not offer enough financing for the start up business. Some start up companies never make it off the ground because they could not get any financing at all.
One of the biggest challenges with the start up business is the fact that all of the expenses need to be paid for – often before you see even one payment from a customer. This can cause serious cash flow problems that can prevent your start up business from finding success.
Invoice factoring can help with meeting the cash flow challenges of a start up business
One of the ways to solve your cash flow problem is through invoice factoring. With invoice factoring, you turn over your invoices for the customers that you do have already, and receive cash for them. A factoring company (called a factor) gives you cash (minus a flat fee percentage of the invoice amount), and then the factor collects the money from the customer. This prevents you from having to wait until you are paid before getting what you need for your start up business. Invoice factoring helps you keep your start up business running smoothly.
General benefits of invoice factoring for a start up business
There are some general benefits of invoice factoring. They include:
- Receive ready capital almost immediately. Instead of having your capital tied up in raw materials and inventory or worrying about how you will pay your employees, you can have cash on hand to take care of the expenses associated with a start up business.
- Supplies the lack left by traditional loan financing. It can be difficult to get traditional loan financing for your start up business. This is because with limited credit and a new business, many banks do not want to take a chance on you. And, in the current lending and economic climate, it can be especially difficult to convince a bank to lend you money for a start up business.
- Does not show up as debt. Even you do not get loan financing now, you may want it later. Invoice factoring does not show up as debt, so it does not affect your ability to borrow money down the road. You can concentrate on building good business credit, and keeping the loan avenue open for later.
Simplifies the collection process. It can be time consuming to chase down payment on invoices. When you participate in invoice factoring, you are no longer responsible for collecting payment. The factoring service pays you for the invoice (minus the fee), and then the factor is responsible for getting the money. Choose a non-recourse factoring agreement so that once you have receive your advance for the invoice, you are no longer liable for it. This way, you can focus on building your start up business and not have to be constantly worried about collecting on invoices. It is also worth noting that many invoice factoring companies also offer other services, including payroll, accounting, billing and inventory management. This can greatly simplify your start up business operations. By having one company do several things, you can work more efficiently. And the fees for these services can be included in the invoice factoring arrangement so that cash may not even be necessary for the things that the factoring company handles.
Invoice factoring can help you solve your cash flow challenges in a start up business, freeing you up to actually run your business.