What to do When Your Companies Cash Reserve Empty.
Most small to medium size business attempt to keep a cash reserve on hand to help facilitate cash flow and avoid cash flow shortages. So what do you do when you have used up your cash reserve and are still waiting on incoming payments to replenish it? Do you say no to new business, layoff an employee??
Companies that have business to business dealings typically have terms that average 30 days. Three years ago net 30 day terms would get paid in 45 days, allowing for time to mail and process payments etc. with the economic downturn net 30 day invoices are being paid in 70 days. So what does a company do to make up 40 day delay? A lot use their cash reserve as that is what it is set up to do handle the overlap. Once the reserve is used many businesses will approach their bank for an increase or new operating line or overdraft protection. Unfortunately the banks are also affected by the current economic times and can only help a small few with new credit. So now what? Sales are still good but getting paid becomes a big problem and employees, utilities and taxes just to mention a few are not willing to wait for your invoices to be paid.
So now its time to start looking outside the traditional areas for solutions.
Spot factoring is the process of selling a few of the receivable of your choice to help maintain your cash flow. Its like turning your receivables into a use as needed cash reserve.
Here is an example of how the process works.
- Sign up with a spot factoring company
- Offer to sell an Invoice of your choice
- Send a notification letter to your customer notifying them to pay the Spot Factor
- Receive cash (up to 90% of the face value of your invoice)
Fast and easy
