Has this ever happened to you? Your sales team lands you a nice big order. You check inventory and realize you’re going to have to short ship and disappoint a potentially lucrative customer, or crank up the assembly line to meet your delivery deadline.
Business is good, but most of your cash is tied up in orders that have been delivered but are awaiting payment. It’s going to be at least 30 days before you see that money, and you need to get busy now.
You go see your banker, who applauds your success, but gently explains that the kind of loan you’re seeking is beyond her pay grade. Your personal credit is already maxed out from the normal demands of a growing business. And you don’t feel comfortable sharing your business details with friends and family.
For some, that’s where the story ends. They have to go back to the customer and talk them into accepting less than the desired amount, and maybe risk losing the order to a better-funded competitor.
A solution minded banker might suggest an alternative.
Invoice factoring, long popular in Europe and other parts of the world, is a way to get cash by selling the value of what your customers owe you before they pay it.
A factor, for example, would deposit funds to your bank account within hours of receipt of those invoices you’ve issued to your customers. This isn’t a loan, so it won’t show up on your books as debt. There is no lengthy approval process or credit check. You get the cash now, and the factor waits to be paid so you don’t have to. The factor is repaid in 30 days when your customer pays.
It costs about what you might expect to pay on a typical credit card order and it lets you get to work satisfying your customers, instead of worrying about collections and cash flow.