One of the more troubling by-products of the recent credit crunch is that many companies implemented immediate measures to conserve cash. One of those measures was increasing how long they take to pay invoices. In the past, most commercial transactions were paid on net 30 terms. That meant that the customer had 30 days to pay their invoice. Now, most customers are paying their invoices in 45 to 60 days. Some are taking as long as 90 days to pay. This has put small and medium sized companies at a disadvantage because few can afford to wait that long to get paid and may need to be paid sooner to be able to meet obligations.

One way to protect your company against this situation is to start building a cash cushion that can be used to cover operational expenses while waiting to be paid. Another alternative is to offer incentives, such as discounts, to customers that agree to pay quickly. Offering a 2% discount for a payment in 10 days is a common practice that can be used to enhance cash flow.

Another alternative is to use a business financing tool called factoring in order to quickly monetize your slow paying invoices. Invoice factoring involves using a financial intermediary between your company and your customer. You sell your invoice to the factoring company, who advances you funds. The factoring company then holds the invoice until maturity and settles the transaction when the customer pays in full.

Most factoring financing transactions are structured as the purchase of an invoice, which is an asset, payable in two installments. The first installment is called the advance and is about 80% of the gross value of the invoice. The second installment, called the rebate, covers the remaining 20% (less a service fee) and is paid once your customer pays the invoice in full.

An important advantage of factoring financing is that is more accessible than other forms of financing. Most factoring companies don’t require that clients have substantial assets. The most important requirement is that the client must do business with credit worthy customers. This feature makes factoring an easily accessible solution for small and midsized companies.

Another important feature of factoring is that it can be deployed quickly. While most conventional business financing programs take a couple months to set up, most factoring plans can be deployed in a week or two.

One of the biggest advantages of factoring is that it can monetize slow paying invoices. This makes it an ideal solution for companies that can’t afford to wait up to 60 days to get paid by customers.

Now that the recession is over and the economy is growing again, transportation companies are finally seeing some growth themselves. However, conditions are more difficult than they were before and most shippers are paying their freight bills slowly. Invoices that used to pay in 15 to 30 days are taking 45 to 60 days to pay. This creates a cash flow problems because few carriers have the resources to pay their operating expenses while waiting 45 to 60 days to get paid. If managed incorrectly, this situation can lead to three possible outcomes: the carrier stops growing, the carrier gets into trouble with operational costs, or in the worst case scenario, the carrier goes out of business.

If you don’t want to get business financing, your only two options are to either restrict growth or to convince shippers to pay sooner. Actually, it’s not unusual for some shippers to offer a quick payment option if you give them an incentive discount, such as 2% off if they pay in 10 days or less. This strategy can work well but it will leave you at the mercy of your shippers. Your company could run into problems again if they decide to stop taking the early payment discount.

Another alternative is to address the cash flow problem directly using freight bill factoring. This financial product provides the equivalent of a quick pay by using an intermediary company called a factoring company, which provides a quick payment for your freight bill and holds it until your shipper pays. Using freight factoring can improve your cash flow substantially by reducing the amount of time you wait to get paid for your freight bills.

Most freight factoring transactions are done in two installments. Your first installment of 90% of the invoice is provided to you as soon as you send the invoice to the factoring company. The remaining 10%, less a service fee, is paid as a second installment once the invoice is paid in full.

One feature that makes factoring an attractive option is that it’s easier to obtain than most conventional business financing products. The most important requirement is that your shippers must have a good commercial credit rating, since factoring companies advance funds based on your shippers ability to pay. Since solid invoices from good shippers are the factoring company’s preferred collateral, small and growing companies that have good clients can usually qualify for this solution.

Freight factoring can be an ideal solution for transportation carriers whose main issue is that they can’t afford to wait for their clients to pay because they need the funds sooner.

One of the most challenging situations a business owner can run into is having a lot of invoices that will be paid in 60 days, a lot of expenses that need to be paid now, and not enough cash in the bank to pay the bills. This is a very common situation for small and midsized businesses that have to give their clients 30 to pay their invoices. Sooner or later, they run into cash flow problems – especially if the company is growing.

In this case, the biggest risk is not having enough funds in the bank to cover payroll. A business owner can delay paying their vendors, but not paying employees is usually an unacceptable option. Usually, missing payroll can signal the beginning of the end since few companies can recover from that.

One solution is to accelerate customer payments. A way accomplish this is to offer customers a discount if they pay quickly. A common rule is to offer a 2% discount if the customer pays in 10 days or less. This strategy is well know and usually works and will help you build a cash reserve. The problem is that this it will leave you at the mercy of your customers who may chose to opt out of the discount at any time.

Many business owners require both quick payments and predictable cash flow. In those cases, the best solution can be to use business financing to cover the cash flow gap. A solution that has been gaining traction in the past years is invoice factoring. Factoring can help cash flow by reducing the length of time it takes you to get paid for your invoice from 30 days to just a couple of days. It works by introducing an intermediary called a factoring company who advances your company funds against your invoices. The factoring company holds the invoice and then waits until your customer pays ay which time the transaction is settled.

Most factoring transactions as structured as two payments. The first payment, usually 80% of the gross invoice value, is given as soon as the invoice is sent to the factoring company. The remaining 20%, less a service fee, is paid as a second installment once the customer pays the invoice. The service fee will vary and be based on the factoring volume and credit quality of your invoices.

One of the advantages of factoring is that it’s easier to obtain that other forms of funding. Most factoring companies look for clients that have customers with good commercial credit ratings. A small company whose biggest asset is a roaster of good customers would be a good candidate for this type of financing.

Factoring is a great solution for companies whose biggest problem is that they can’t afford to wait 30 to 60 days to get paid by their clients.

Most companies experience cash shortages at one time or another. This article will explain how to address a common problem that causes shortages and will also suggest some strategies to del with them. However, this article should not replace the advice of a qualified professional. If your company has serious cash flow problems, you should consider speaking to a financial specialist immediately because waiting seldom helps.

Let’s look at the most common cash flow problem. In corporate sales it’s common to give customers 30 days to pay. Thanks to the economy, most customers have taken longer to pay their invoices. Some can take as long as 60 days to pay. This leaves companies waiting up to two months for payment. In the meantime, the company needs to cover it’s expenses regularly. You need to pay rent, vendors and employees. So these payments come out of your reserves, until the invoices pay. The problems start when your reserves dwindle due to growth or slow paying customers.

There are two ways to protect your reserves. One way is to delay expenses so that they come close to matching your invoice payment cycle. The other one is to accelerate invoice payments. Ideally, you want to take both approaches to achieve the most optimal solution.

The most common way to delay expenses is to speak to your own vendors and seek 30 to 60 day terms yourself. If you have been a good client to them, many will be happy to oblige in order to keep your business. However, if you renegotiate payment terms, be sure that you can meet the payments, otherwise you risk losing your vendors. One thing you should avoid at all costs is missing payroll or not paying taxes. If you are at risk of missing payroll, seek the help of an advisor as it’s a sure sign your company is in serious trouble.

There are a couple ways you can accelerate your invoice payment cycle. One is to speak to customers and offer them a discount if they pay quickly. It’s a common industry practice to offer a 2% discount to customers that pay in 10 days or less. If that approach is not sufficient, you should consider factoring your invoices. Invoice factoring accelerates your revenues by using a financial intermediary who advances you funds against your slow paying invoices. The factoring company holds the invoice until maturity and settles the transaction with your company once the customer pays the invoice in full. The factoring fee is based on the factored volume, the credit quality of the invoices and other variables.

One advantage of factoring is that it’s easier to obtain than conventional business financing. The impost important requirement to qualify is to have customers with good commercial credit ratings. It also works well for company whose assets are limited to good quality invoices from credit worthy customers.

Most cash flow shortages require a comprehensive approach of managing both expenses and income in only to ensure the company has sufficient liquidity to cover obligations. Factoring is a tool that can be used to help in this effort.