Disorganized cash flow can be costly, and if it gets too disorganized the results can even leave a profitable business too cash-poor to take advantage of opportunities. That is why organizing your cash flow is essential, and when you operate with invoices instead of a cash-and-carry policy, it can be hard. Customers pay unpredictably, so your organization has to put a buffer between the money you have and the money you need.
Separating Income and Outgoing Cash
The principle is simple. You have a pile of cash that funds your bills and supplies so you do not need your income to do it, and then you set aside the incoming cash to form the next pile. If your business has a deep cash reserve, you can self-finance it, but most companies do not. Some use credit lines, but many companies that rely on invoice billing choose accounts receivable financing instead. That is because AR financing has some unique benefits that can make it more cost-effective than a credit line under the right circumstances.
When you use AR financing to stabilize your cash flow, you schedule dates to send out your invoice pool for financing. This gives you a big lump sum you can use as that operational budget while your customers pay off those invoices, and it also outsources the work of collecting and tracking payment to your service provider. At the end of repayment, any money left after the fees and advances are paid off will be sent to you.
Scheduling Your Submission Dates
Your period between invoice financing rounds is the span of the budget you need to set, so many companies choose either monthly or quarterly financing. Monthly financing means you have less work to do tracking invoices and more frequent pay dates in case of budget shortfalls. Quarterly financing means you have a higher chance that customers will pay invoices issued early in the budget period before you need to finance them, saving you the fees.
Both choices have their advantages, and the right choice is the one that makes accounts receivable financing work for your business. If you combine this cycle with best practices for budgetary discipline, you could even wind up being able to set aside some of your remaining budget as reserves or profits when you reach the turnover point. It takes some time to get that discipline down, but the first step is to start researching your financing options, and you can do that today.
Seek Expert Assistance
Accounts receivable financing is a perfect fit for businesses that want to ensure strong cash flow. Build up capital reserves for growth, automate the accounting process, and pivot away from debt-based loans. Contact Wingspan Funding Inc. today to get started.