Even long-established, solid-growth companies can run into cash flow problems. This reason along is why it is wise for startup businesses or those with less than five years of experience to get on top of their finances. For those in the fast-paced world of high tech or information technology, effectively managing your business cash flow can mean the difference between growth and decline.
Yet even savvy business and financial managers can have a hard time managing cash flow, even when sales are good. Such companies can still struggle with cash flow problems due to 30- to 60-day payment cycles and late-paying customers. Because the world of IT moves so quickly, a big customer who pays late could leave an IT company unable to fulfill an order due to lack of funds. In the somewhat unforgiving world of technology and business, dropping the ball even once can send customers to your competitors.
Systemize your cash flow with IT factoring
One way to get and stay ahead of cash flow problems is to use a technology financing method known as IT factoring. This is more commonly known as accounts receivable factoring. By selling your invoices to an invoice factoring company each month, you can collect the money for those receivables in 2-3 days instead of 30-days or more.
Setting up a monthly invoice factoring contract forces you to put an accounts receivables system in place. This alone can be an effective way to proactively manage cash flow. Once you have a secure and reliable incoming and outgoing system set up, you can offset some of the costs related to IT factoring. One way to do this is by offering your customers a small discount for paying invoices within a 10-day window. The value of ensuring that customers pay you within 10 days – or maybe even five days – cannot be overstated. By factoring your receivables, you will know precisely when clients pay.
Thanks to technology factoring services, healthy cash flow can enable you to:
- Purchase inventory in bulk therefore reducing your overall costs
- Lease equipment when you need it to increase production
- Hire and cover payroll for additional workers due to seasonal business fluctuations
- Move into new markets or territories to meet demand
- Stay on top of marketing and sales efforts rather than playing catch up and losing customers to the competition
- Take on new contracts or opportunities as they come up without the worry of “Can I pay for this?”
Be aware that the factoring company does charge 2-8 percent of the invoice value. However, many IT companies recognize the value of the quick 2-3 day turnaround and are content to pay it. Much like the act of factoring receivables itself, IT companies move at a fast pace and need an financing resource that can keep up when banks and their term business loans simply cannot.