How Cash Flow Factoring Can Save A Business From Ruin
Cash flow factoring is a financing method for companies that are struggling to meet their financial commitments. Also called no-notification factoring, cash flow factoring or cash flow funding is mechanism that can be invoked by companies who need to improve their cash flow situation. Cash flow factoring is not borrowing. It does not involve the company getting into debt or incurring additional liabilities. It is a commercial transaction that provides much needed cash for immediate use on the strength of sales that have already been made but are not yet due to be paid.
Although cash flow factoring is not cheap - there are charges to be taken into consideration - it can still be a cheaper option than bank borrowing. The one factor that will make or break a company is cash flow, accounts receivable can provide a mechanism whereby cash can be injected into a business both quickly and easily. It is a solution that is suitable for most businesses - even those that would traditionally be considered high risk. Having leveraged the accounts receivable to improve cash flow, collection of amounts due then becomes the responsibility of the cash flow factoring company. Cash flow factoring companies, such as West Asset Management will deal with all of the credit control functions on behalf of their client company relieving them of the administrative burden of sales invoice processing. Cash flow factoring is not a new idea. The concept has been practiced for thousands of years with literature revealing many examples of early cash flow factoring instances. For a manufacturing company, cash flow funding can allow them to buy more raw materials to continue production rather than have to wait for earlier sales to first be paid. Cash flow factoring can be particularly suitable for start up businesses. A start up business is traditionally considered to be high risk as it will not have had time to build up a decent credit rating or trading history on the back of which it can raise finance. Start up costs are nearly all front loaded. As credit will often not be extended to a start up enterprise, all goods and equipment have to be paid for up front. This can place an intolerable burden on a fledgling company. Cashflow funding is a way of seeing an earlier return on sales efforts than might otherwise be achieved and this can make the early days in the life of a business much easier to navigate. Of course, factoring and cash flow funding relies on sales having been made so this is not the solution for the business that has yet to commence trading. But, it can provide a ready solution for the business that has left the starting post but has yet to clear the first hurdle. With the variety of financing solutions available from companies such as West Asset Management there really should be no need for any company to fail simply because of cash flow problems - unless of course those problems are generated from a lack of sales. |