One of the biggest hurdles business owners have to overcome is finding enough working capital. Without working capital, a business just can’t function. If a business is an engine, working capital is both the fuel that feeds it and the oil that lubricates the moving parts. Without it, the engine can’t run.
A lot of time and energy is spent finding working capital to launch, sustain, and grow a business. It’s not enough to just find the money, either; you have to manage it well so that you have steady cash flow, credit when you need it, and room for growth and error.
Here are three ways to increase and make the most of your working capital through accounts receivable financing.
Improve Cash Flow by Skipping the Collections Cycle
For a business that depends on collecting payment from customers or clients, managing collections is one of the most frustrating processes they have to deal with.
Failure to pay is often the biggest reason why a company’s working capital dries up. Add in the time and expenses of getting your customers to pay their bills, and you have a big problem that can throw a wrench into your business cycle on a moment’s notice – especially when you go through a rash of unpaid customers at the same time.
Accounts receivable financing helps you avoid the headache of collections because you get paid for all of your outstanding invoices – meaning no collections on your end. You don’t have to wait on unpaid bills; you can plan accordingly and fund your business while the AR financing provider has to worry about collecting.
Better Forecast the Future for Your Business
One reason why working capital dries up or becomes unreliable is because business owners can’t always forecast needs into the future.
Many owners are in the “get through the quarter” mindset that can quickly devolve into a “get through the month (or week)” mindset. That prevents them from being able to plan ahead, make full use of their resources to maximize revenue and profit, fine-tune their business and stay agile to adjust to moving market conditions, and plan marketing campaigns well in advance that have a higher chance of succeeding.
Accounts receivable financing gives you that time to plan ahead because you’ll have a reliable idea of how much income you’ll receive moving forward. You won’t have to guess or stress out about what’s coming in; you’ll know, and you’ll be able to plan accordingly, which will pay dividends when you can make moves in the market to grow.
Keep a Cash Reserve Just in Case
A good business owner invests in his or her business, and often that means putting revenue back into the business to fund growth.
But, it’s also prudent to store up a cash reserve that is built during good times to get the business through the bad. A cash reserve is crucial for a business to make it through dry periods, or to pay for emergencies and unexpected expenses. However, it can be very difficult to build up a cash reserve without help.
One way you can develop a cash reserve to pay for 3-6 months of expenses is through accounts receivable financing. Since ARs are forward-looking, you can better predict your costs and your revenue and see how much extra you can stash away in your cash reserve. Over time, with AR financing, you’ll see your cash reserve steadily grow, which is reassuring to any business owner.
And higher cash reserves can provide a steady stream of working capital when you need it, so when you increase your cash reserves, you’re also increasing your working capital down the road.
Accounts receivable financing can be enormously beneficial to a business owner when it comes to securing working capital. Remember: without working capital, a business can’t function. Use accounts receivable financing to solidify cash flow and get the most from your business’s resources.
Corporate Billing provides invoice factoring options for a variety of small businesses.
Contact us to get a quick quote. Our team has decades of experience helping trucking companies and service providers get paid on time and grow their businesses