Which Is A Purpose Of The Statement Of Cash Flows Your Business Can Access Working Capital

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Your Business Can Access Working Capital

The number one reason companies fail is lack of capital (running out of cash). According to Bloomberg, 8 out of 10 business owners fail within the first 18 months. Another 50% fail in the first 5 years. Other reasons for business failure include; lack of experience, poor location, entry into saturated markets, excessive investment in fixed assets, unexpected growth and poor credit arrangements. Let’s add one more to the list; not knowing where to go to access working capital.

Most business owners invest their own personal money to keep the business going. Some will go to friends and family. Some will try the bank. But if you don’t have a lot of assets to pledge, a proven track record, a good credit rating, or you’re not yet profitable, chances are the bank will turn you down. So where do you get a loan to take your business to the next level?

There are private companies that will give a loan to a company that has daily cash flow, as long as some basic conditions are met. The business owner does not have to pledge assets or have a high credit rating. There are viable financing alternatives for receiving business funds that are not considered loans. There are business financing programs that do not require you to pledge assets, have excellent credit, or a long proven track record. A word of caution, don’t expect to get the same rates you would get from a bank. These private lenders take more risk than a bank, so a higher return on their investments is expected. Some of the business financing options available include merchant cash advance, small business loan, purchase order financing, invoice factoring, and supply chain financing.

Merchant advance in cash

If your business accepts credit cards and debit cards, there is a program called Merchant Cash Advance that has very high approval rates. The business owner does not have to personally sign or have good credit. A Merchant Cash Advance is not a loan, but a purchase of your future credit/debit card bills. The advance will purchase a future amount of credit card receipts / debit card receipts at a discounted rate. The advance will take a small portion of the business’s daily sales until the amount is repaid. A typical payback is 6 to 10 months.

Small business loan

There is a small business loan available to business owners. The lender is more concerned about the company’s daily cash flow than the credit rating and ability to pledge assets. The business owner does not have to sign in person. This small business loan has very high approval rates, with some basic funding requirements. The lender will take a small fixed amount from daily sales until the loan is paid off. The loan repayment term is one year.

Purchase order financing

Has your company been working on a major contract? Congratulations, you have just received the long-awaited purchase order. As you admire your new conquest, you see small print with the words Net 30, 45 or 60. Your business may be experiencing cash flow problems. Vendors and payroll may need to be paid before you receive payment from your customer. If your business doesn’t have enough working capital available or access to working capital to wait until you get paid before paying your suppliers and staff, what do you do? If your purchase order is from a reputable company, your company may receive a cash advance for that purchase order. The purchase order itself is a legal contract to purchase a product or service from your company. The lender will know that the buyer will pay as long as you fulfill your part of the contract and advance enough money to ensure that your contractual obligations are met. The lender will be concerned about the buyer’s ability to pay and your ability to fulfill the contract. They won’t be as concerned about the company’s credit rating or pledging additional assets.

Invoice factoring

A company can be profitable and yet fail due to poor cash flow. What a profound statement. A cash flow gap can be created when a customer pays more slowly than the company has time to pay its employees and suppliers. The company waits for clients to pay before it can pay its own expenses. This can be a very serious situation and cause the downfall of a profitable company. Fortunately, there is an alternative financing solution called invoice factoring.

Factoring invoices are business financial transactions in which a company sells its receivables (invoices) to a lender (factoring company) at a discount. There are three parties involved in this type of business financing. One is the company that provides the service or goods to the customer, two is the factoring company that will give the company an advance, and three is the end customer who received the goods or services. When a company delivers goods or services to an end customer, an invoice is created. That invoice is then purchased by the factoring company at a discount. The factoring company will advance the company a large part of the value of that invoice.

The end customer will then pay the factoring company directly the value of the entire invoice. When the end customer pays the invoice, the factoring company will send the remaining amount of the invoice minus a small fee to the invoice factoring company. Consider the following scenario: A company completes a service or sells goods to an end customer that typically take 30 days to pay for. Almost immediately after the transaction takes place, the factoring company will advance the company a large portion of that invoice. The company now has most of its funds available, almost immediately, to pay its suppliers, complete payroll, or whatever else it would like to do with those funds. After the end customer pays the invoice, the remaining amount is forwarded to the company minus a small fee. Invoice factoring can greatly help with cash flow, especially if the business is in a period of growth. Factoring companies are not so much concerned about the credit rating of the company as they are more concerned about the ability of the customers to pay.

Reverse factoring or supply chain financing

This method of business financing is similar to invoice factoring. The difference is that traditional factoring is when the supplier decides to factor invoices to their customers, but in reverse factoring or supply chain factoring, the customer initiates the factoring to help their suppliers finance their receivables. Reverse factoring or supply chain financing can be an effective way to improve your cash flow. The benefit for both parties is that the company supplying the goods or services can receive the outstanding value of its invoices very quickly, and the ordering company can defer payment of the invoices, thus improving their cash flow position.

In today’s business, it is very important to have access to working capital. Rest assured that business financing options are available to you. Know your options.

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