Can Invoice Factoring Improve Cash Flow?

One of the top priorities of any company is to improve cash flow. Having cash available for routine payables, growth opportunities, or unforeseen issues is a good business practice. Improving cash flow can be an ongoing challenge for businesses. Here are some common ways successful companies improve cash flow.

Review Credit and Payment Histories of Potential Customers 

When it comes to improving cash flow, it is essential to research and ask potential customers’ for references when it comes to doing business with an organization you are unfamiliar with.

Online reviews are a source of information on a company. Although they can be expensive, purchasing a subscription to a credit bureau can be a money saver in the long term. In the end, you have to get paid for the work your company performs. Make sure your customers have the ability and history of paying others in your industry.

Improve Invoicing to Improve Cash Flow

The next step to improving cash flow is to enhance your company’s invoicing process. Invoicing is crucial to cash flow. Make sure to hire an experienced person to manage your accounts payable or properly train your internal staff.

Large organizations have entire accounts receivables departments, in which trained and experienced staff make sure all work is billed and invoices are created, reviewed, and submitted for payment. Small business owners don’t have the luxury of large departments, so it’s essential to do things right.

For best practices,  invoicing should include any supporting documents related to the work performed i.e., work orders, bills of lading, tickets, and/or timesheets. Whatever service you are charging your customer for, should have documentation and sign-offs that show a customer representative has accepted or approved the work.

Manage Your Accounts Receivables 

Any company that wants to improve cash flow must have a dedication to managing its accounts receivables. If your organization has vetted your customers and invoiced your work correctly, you have done the big steps to getting paid on your receivables, within terms.

Managing accounts receivables properly improves cash flow

Despite the best efforts, there will be invoices that go overdue and need to be addressed.

The process is tedious but straightforward.

  1. Call the customer and speak to the accounts payables department.
  2. Discuss if there is anything preventing payment of the invoice.
  3. Ask for a specific date the check will be mailed, and confirm it is going to the right address.
  4. Document your conversation and if the check doesn’t show when promised, then call again and speak to a higher authority.

In the end, working with customers that do not pay on time puts your business at risk. If you need to spend your time getting customers to pay, that is time away from the task of growing your company. If you are going to improve cash flow, work with customers who are good business partners.

Use Invoice Factoring to Improve Cash Flow 

Companies that vet their customers have solid invoicing practices and manage their receivables will improve cash flow. This may be enough to enable management to operate the business without outside financing.

Some companies will take the next step; they will factor their accounts receivables. Factoring is a type of financing in which a business sells its open receivables to a factoring company in exchange for an immediate cash advance. Factoring improves cash flow by providing money each time invoices are sold to the factoring company. This consistent cash flow is used to meet payroll, pay bills, or any other expenses.

Besides the benefit of immediate cash, top factoring companies offer additional services such as credit analysis, invoicing review, and receivables management, all to help improve cash flow. With the assistance of a factoring company on these tasks, business operators can focus on improving work efficiencies, managing their staff, and growing the company.

Invoice Factoring with Scale Funding

Scale Funding has offered factoring services to small and mid-size companies for more than 25 years. We offer monthly factoring lines from $50k to $10 million, with no long-term contracts. For more information on using receivable factoring to improve cash flow, contact us via the web, or call (800) 707-4845.

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