The other day I was explaining what I do to a group of relatives – none of whom are entrepreneurs. After explaining that I help businesses solve cash flow issues with invoice financing, my cousin laughed and said a business with cash flow issues probably isn’t worth saving. That isn’t the first time I’ve heard that. So many people make the assumption that if you have rocky cash flow, you’re either operating a bad business or doing a poor job of running it, but this rule of thumb simply doesn’t apply. Yes, a poorly run business can run into a cash crunch, but successful businesses also face cash flow crises, especially in today’s business world!

Until you’ve witnessed or experienced it, it’s not easy to fathom how quickly a business cash flow situation can spiral on itself. Most people think a successful business has plenty of money. And it’s true, many do. But some, especially those operating as suppliers to other businesses, often survive invoice to invoice. They have adequate — sometimes robust — sales, but are challenged by customers who keep extending their payment terms as a financial strategy.

In recent years, many larger conglomerates have pushed their payment terms to 120 days. So while suppliers keep paying their bills for inventory on relatively short terms, they aren’t paid with the same predictable frequency. Could your business survive delivering goods or services without receiving payment for four months?

The strategy, of course, is for a large customer to hold on to their own funds as long as possible. That means you could operate a successful company, win a large, lucrative contract with a reputable, multinational corporation, and still have trouble predicting cash flow. That could leave you in a crisis for:

  • Paying staff on time
  • Meeting essential obligations such as payroll taxes and insurance obligations
  • Paying suppliers and replenishing inventory
  • Reinvesting in your business
  • Hiring additional employees to meet new demands
  • Seizing a new business opportunity
  • Paying rent
  • Taking advantage of special temporary pricing

Other businesses that often benefit from invoice financing include manufacturers who purchase large quantities of materials to fulfill orders, businesses with high overhead costs, and others with seasonal peaks and valleys.

Seasonal Challenges

Businesses with peak and slow seasons encounter financial demands of a different sort. In the peak season, those companies need access to cash to finance higher receivable levels, pay more employees, etc. Traditional loans require a steady, predictable income, so flexible invoice financing can help these companies meet their seasonal needs.

We helped one client that manufactured upscale fishing poles grow from a $13 million company to a $31 million company when the owners sold it. They were loyal to their local bank, but that bank couldn’t provide them with a larger line of credit due to the seasonal nature of the business. We carved out a pool of longer-term receivables to help them tap into more cash to invest in their company at a critical time.

Invoice Financing

Invoice financing is one of the least understood and under-utilized financing options. When you work with an invoice financier, you conduct your business normally and invoice like you always do. Then a company like First Business Bank pays you a cash advance quickly at an agreed advance rate (80% - 90%) for those customer invoices, freeing you up to pay employees and reinvest in the business. Our experts take it from there – you don’t have to worry about collecting payment, which allows you to focus on your business instead of your outstanding invoices. We send you the rest of the payment, minus agreed-upon fees, after your clients pay the invoices.

Learn More About First Business Bank's Accounts Receivable Financing Team

Many business leaders also find invoice financing attractive because their personal and business credit history aren’t as important to invoice financiers as the creditworthiness of their customers paying the invoices. You likely got into business because you enjoy making a particular product or offering a unique solution – and you’re good at it. Invoice financing allows you to focus on what you enjoy, and grow your business.