Any business that sells a product or service can seek options to balance uneven cash flow by enlisting the facilities of factoring firms. Often companies have to wait up to 90 days for their customers to pay them for work they have completed, this delay can put significant pressure on a business owner’s ability to meet financial obligations. Factoring is the cash-management tool of choice for many companies and is very common in certain industries, such as the clothing industry, where long receivables are part of the business cycle.
There are different forms of factoring that a business can choose from, such as invoice discounting and invoice factoring, depending on which method suits best. The essential difference between factoring and invoice discounting lies in who takes control of the sales ledger and responsibility for collecting payment. With factoring, the provider takes the role of managing the sales ledger, credit control and chasing customers for settlement of their invoices. With invoice discounting, your business retains control of its own sales ledger and chases payment in the usual way.
In most cases, factoring firms are used by a wide range of industries because they offer the flexibility needed to react quickly when the market changes, and can form the basis of a plan for growth. Businesses that are seasonal, growing too rapidly, high-risk, low-profit, unestablished, or struggling with poor cash flow are good contenders for financing receivables.
Most commonly, industries that reap the advantages of invoice financing comprise of construction, recruitment, manufacturers, logistics, wholesale and distribution.
The hierarchy of contractors and sub-contractors in the construction industry often means long delays in payment for those at the bottom. Construction factoring addresses this issue, and helps whether you’re a single, independent contractor near the bottom of the payment chain, or a small company in the middle.
Recruitment companies help people find work and bring in money when the job market is otherwise slow. Having said this, even the recruitment agency themselves can experience cash flow troubles for several reasons.
The discrepancy in the time between paying staff and getting paid for the services provided has always been an age old dilemma for recruitment companies to overcome. With such long waiting period for payments, recruitment companies stumble to manage any sort of control over cash flow, making planning for future all the more impaired.
Having a positive cash flow is crucial for manufacturing companies. When the cash flow becomes stagnant or even decimates, a company in this industry could go out of business or suffer a severe setback because it cannot fulfil its orders. There are several functions that operate within a manufacturing firm that depend on cash flow and its future, such as high production costs, tariffs, rising transportation, fuel costs and fluctuating currency values.
Companies within the logistics industry tend to have a weightier demand for cash than many other industries, due to seasonality reasons such as fluctuating costs of fuel. This leads to companies struggling to find the cash they need to ensure smooth operations or make reliable financial projections. A logistics company’s performance success depends on being able to deliver services within a fast response time and with an influx of cash flow, these key performances can be easily met.
Wholesale & distribution
Cash flow is a renowned occurring problem for wholesale and distribution companies. The payment terms between a wholesale company and larger companies such as high street retailers, e-commerce sites, supermarkets and department stores is around 120 days. Within distribution, customers expect efficient systems for timely delivery of goods, but their payments do not always follow those same expectations.
The disparity between delivering goods and receiving payment for those goods means manufacturers have unreliable cash flow, which in turn stunts their growth potential and falters opportunities to sell to new stores or accept further incoming orders with customers.
Whether you need to improve your cash flow to keep up with bills or to expand your business, factoring firms can offer affordable and fast financial solutions.