Ways to Improve Your Business Cash Flow [2024]

Cash flow is Vital

Good, healthy cash flow is critical for your business. You need to get paid, and you need to get paid promptly. If your clients are taking too much time to pay their accounts, there’s a near-infinite number of problems your business can run into.

You may not be able to pay your employees on time, leading to frustration and disgruntlement. You may not be able to pay the rent payments needed to run your business. You may not be able to make necessary investments to grow your business. You may not be able to pay material providers to continue producing your products.

Good cash flow will allow you to do all of this. Simply put, good cash flow will allow you to run your business smoothly.

Invoice Factoring

If your business relies on getting paid through invoices, invoice factoring is a great option to consider to make your business run more smoothly and improve your cash flow.

What is Invoice Factoring

Invoice factoring is the practice of selling your invoices to a third party, who will immediately give you a portion of the invoice, normally the vast majority of the invoice, and then collect the payment of the invoice from your client. When they collect, they will then pay you the remainder of the invoice balance, and subtract a small fee.

Invoicing companies exist to give you access to the funds you invoice for immediately. Having the lump sum from the invoice immediately can allow your company to pay its needed expenses and operate with greater flexibility. Some of the industry leaders will be able to give you the funds immediately, 24/7, whenever you send an invoice.

The Best Invoice Factoring Companies

Deciding what invoicing company to work with is a big decision. The companies vary in the percentage of the invoice they provide up front and what fee they take, as well as when they can deliver payment. If you want a full analysis of the best companies in the industry, click here

Different invoice factoring companies specialize in different sectors. Some companies offer their services across industries. Certain companies even offer specialized industry specific benefits, such as fuel rewards programs for trucking companies. If you work in an industry like trucking, it’s worthwhile to think about which companies work specifically with your industry.

Difference Between Recourse and Non-Recourse Funding

One of the most important things to think about when deciding which factoring company to work with is determining if they offer resource or non-recourse factoring. What’s the difference?

Suppose the situation where you give an invoice of yours to your factoring company, collect the lump sum payment, and go about running your business. Later, the company you invoiced declares bankruptcy. They cannot pay the invoice. What happens next? Who is responsible for that debt?

If your factoring company is non-recourse, then you will not be responsible. You will get to keep the lump sum, and the rest of the invoice will be paid to you whenever the factoring company is able to track down the debt. However, if your factoring company is a recourse invoice factoring company, you will be responsible for the debt. Depending on the terms of your agreement, you will either have to pay back the lump sum or provide them with another invoice of equal value as collateral. Before working with any factoring company, it’s critical that you carefully read their agreement. To learn more about the finer details and advantages of recourse and non-recourse plans, click here.

Offer Incentives for Up Front Payment

If you can offer discounts or some other incentive for up front payment, think about it. It could be incredibly beneficial to your business. Increasing the amount of payment upfront is a worthwhile solution to cashflow problems, and can make sense in a lot of industries.

If there is an exciting non financial incentive you can offer, such as some sort of perk, which is easy for your business to deliver, consider implementing it. If this is commonplace in your industry, or you think would be reasonable with your customer base, consider implementing it. Up front payment is the best cash flow issue mitigator, and anything to increase it is worth thinking about.

Utilize High Interest Savings Accounts

How you store funds for your business can make a tremendous difference in terms of liquidity and cash flow. Some banks specialize in working with businesses, offering a wide variety of benefits depending on your specific company. Some banks are better equipped to deal with larger or smaller businesses, or businesses in different sectors.

Benefits of Business Banking

-Increase financial security

-Accrue interest

-Improve cash flow

-Improve financial flexibility

Many companies operate in the business banking industry. Some are better equipped to work with large corporations, while others small businesses. It’s crucial to understand the business banking industry to find the best fit for your company.

About the Author

Blake Bobit has been an entrepreneur and business owner for over 25 years. He is the CEO and founder of Solution Scout, which he made to provide the most helpful answers to questions about business solutions. Blake provides strategic advisory services to businesses in many industries nationwide and is passionate about helping others reach new levels of success.