82% of new businesses will fail because of one thing. And no matter the industry, that one thing has nothing to do with how incredible a product is or the quantity of time and money invested in it. Rather, it’s because of cash flow.
Owning a business is not for the faint of heart — every entrepreneur knows this fact. It requires passion, sacrifice and focus. Entrepreneurs also know that by surpassing the biggest challenges and setbacks along the way — including cash flow— they’ll ultimately have a product or service that makes all the stress and effort worthwhile.
Luckily, there are a wide range of tools and solutions available to help overcome these common financial hurdles. One option is invoice factoring, which works by selling unpaid invoices to a third party, known as a “factor,” who pays your business in advance for that invoice and collects the payment directly from your customer. This tried and tested financing method can get help you remove hurdles altogether.
To get more on the specifics of factoring, see how it works here.
How to avoid a false start in your business
1. Be quick out of the blocks.
When your business operations are flat, it’s time to make a bold move. Finding ways to achieve rapid growth (in a scalable way) can be one of the biggest challenges that businesses face. But when that growth is exponential, you may also see an equal increase in expenses — creating a need for more cash — fast.
2. Create your own track record.
There’s an old saying that banks will only give you loans when you don’t need them. Factoring, thankfully, is impervious to old sayings and archaic banking restrictions. Where a bank won’t give a loan to a small or mid-sized business for any number of reasons, factoring has a different structure and set of regulations, making it much easier to apply to businesses of all sizes.
3. What if it turns into a marathon?
Depending on your industry, you may have to wait 30, 60 or 90 days from the date of the invoice to receive payment. While this may be okay for the more established players, for a newer business or one under a cash crunch, waiting 90 days on an invoice (especially a large one) can be extremely difficult or even damaging.
4. A dropped baton doesn’t have to mean it’s over.
Nobody likes late payments, but every business has experienced the pain that comes with waiting on accounts receivable. And no matter the size of the business, late payments can have far-reaching consequences. Factoring eliminates this problem and often shifts the responsibility of collections from you to the factor.
5. Sometimes it’s a sprint to the finish.
Stocking up your inventory often requires paying suppliers on the spot. It’s imperative to have cash upfront to keep inventory at the right level to meet demand. The flexibility offered by factoring means you can have the right working capital to keep inventory levels on target, avoiding supply issues before they happen.
Ask these questions to get on the inside track
If factoring could be the solution to your cash challenges, it’s crucial to find the right partner who understands your industry, the specific challenges you’re up against, and can offer the best funding solution to advance your business.
But before signing an agreement, there are 10 important questions to ask any invoice factoring partner. The answers will help you quickly narrow down the pool of candidates and find the perfect match.
Get the eBook which explains all 10 questions and shows you the answers you should be searching for.
Download: The Invoice Factoring GuideBook.