If you sell to other businesses on credit terms, there is a cash flow gap you have to overcome with each new sale. Your sales may be increasing, but when you have to wait 30 or 60 days to collect on your open invoices, your cash flow will be strained. Invoice factoring is a cash flow tool that works to bridge the gap between your sales and invoice collection.
In this episode of Eagle Eye, Ian discusses how factoring serves as a bridge between invoice creation and invoice collection. The full video transcript is below!
What is the gap between sale and collection?
Today we’re going to be talking about bridging the gap between making a sale and the collection (or getting paid). What do I mean by that? Most companies will grant credit to their customers. So you complete the sale, deliver the product, or complete the service. You give an invoice to your customer on completion, and then you have a period of time, the credit period that you’ve granted to them whether it’s 30 days or 60 days where you’re waiting to get paid. And that’s fine. You’re happy to grant your customer credit, but it’s really hurting your cash flow, and it’s slowing down your ability to make payments to suppliers, fulfill new orders, because you’re waiting for that cash to come in from your customer.
How can you bridge the cash flow gap between sales and collection?
So bridging the gap between the sale and the collection is where factoring can help you. You still want to grant credit to your customers. They will need that from you in order for you to remain competitive and make that sale. Even selling on credit terms, you do not have to wait to get paid. You can sell your invoice to a factoring company. They will give you a payment upfront (typically 80 to 90 percent, maybe more). Then, you have the benefit of getting that cash right away once you’ve completed the sale. With that cash flow, you can extend more credit to more customers and take on more orders because you’re not waiting to get paid.
Factoring bridges the cash flow gap between sales and collection
We’ll pay you instantly, as soon as the sale is complete, so that gap no longer becomes a cash flow crunch. It’s something that the factor is bridging for you. You carry on doing your business normal course of events as you would. Your customers love you because you’re continuing to give them credit. Factoring is just stepping in place of that waiting period, giving you the cash you need to continue to grow and fulfill those new orders. So, if you have a cash flow crunch from the gap between sales and collection, think about factoring. It could be a great solution for you.