Some types of small businesses are plagued with understandable mismatches between inflows and outflows. You would also be prepared to take advantage of opportunities that don’t come along all the time. Factoring can produce immediate capital to allow you to expand the business to meet the demand. How do you accommodate that kind of demand? One way is by having your outstanding invoices factored to give you an immediate bump in working capital.Īnother scenario is that you’re growing quickly, and you’d have the opportunity to sell your products to more customers if you had more inventory on hand. Then Kroger comes along with the purchase order you’ve been waiting for - but they want 100,000 a month. Your company might be making granola bars in a commercial kitchen and selling 10,000 a month. One of them is for you to be able to accommodate a big customer opportunity or multiple opportunities at once. There are several other scenarios in which factoring can be particularly useful, too. With factoring, they can accomplish the same purpose - ensuring reliable cash flow - more strategically. I find it interesting that many small business owners will readily give a discount to a customer to get paid early. The difficulty posed by not having access to working capital is just one of them. Small and medium-size business owners know that slow or unpredictable payors are a huge problem for several reasons. And then there are the frustrating details of payments that can change depending on the calendar, on the weather or even on the vacation schedule of someone in a client’s accounts payable office. They must deal with the challenges of planning around erratic cash flow. They have to worry about when they’ll get paid. There are plenty of distractions that arise for entrepreneurs.
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