Many companies suffer from a series of “spikes” in their cashflow.
Working capital problems cause operational crises and stifle the ability to plan
for the future.
Solving short-term financing issues take up too much valuable senior management
time which should be concentrated on running and/or expanding the company’s operations.
Winning large contracts can often cause more problems than they solve in that the
difficulty is often finding the additional finance required to fund the work. Obtaining
an overdraft is usually a lengthy process and is inflexible in its nature. It is
particularly difficult for companies without a financial track record or the security
available to negotiate a facility with the bank.
Without factoring companies are reliant on the timing of customer payments which
in turn affects their ability to pay suppliers. This then affects future supplies
and so the process continues to deteriorate.
Factoring resolves many of these issues as monies are advanced once the order has
been completed. The amount that can be borrowed is commensurate with the sales and
hence removes the need to re-negotiate overdraft limits or incur additional arrangement
fees.
Improved cashflow allows companies to tender for new business and start work on
new orders without delay. It also means that suppliers are paid promptly thus improving
supplier relationships and allowing for the possible negotiation of early settlement
discounts which further improves profitability and cashflow.
The sales ledger is often a company’s biggest asset but is the one asset most often
overlooked in terms of finance generation.