Small businesses thrive on the ability to be nimble when an opportunity arises. That is why it’s so important to have an administrative structure that makes it easy for you to put your capital to use. When you have a small operation and clients who expect invoice plus accounting, staying nimble can be tough because you never know when your next payday will come.
Normalize Your Income
One big reason to use factoring regularly for all your invoices is to normalize that income. Customers who order jobs and then pay between your submission windows will still happen. The point of the submission dates is to give your books a reset, providing you with a lump of cash for cash flow management over your next budgetary period. Payments made during that period can be put into reserves or set aside to add to the capital for the next budget, depending on your current growth plan.
Minimize Your Bookkeeping Time
Nothing will get you out of keeping accurate books, as time-consuming as that can be, but sending your invoices out regularly does mean you get to minimize the time you spend tracking payments, running to the bank, and following up on invoices. Instead, you are basically selling the debt and the right to collect it to a third party. You take less than face value for them, but you also work a lot less to get the money. For owner-operated companies and independent professionals, sending out the work of collecting invoices means a lot more project time to actually earn your money.
Adjust Your Project Quotes
After a couple of budgetary periods, you will start to see which clients pay promptly enough that they rarely wind up being part of a factoring package and which ones regularly go out. At that point, you might want to think about a couple of subtle adjustments to the rates for those clients, to make sure you are recovering the cost of constantly waiting for payment. With the right price tweaks, you can maintain your margins by folding the cost of the service into the fees paid by the customers who make it necessary. That also provides a small but meaningful discount for your most loyal customers.
Understanding how to use your financing to reduce your additional workload is one of the most important parts of learning cash management for a small company. If your money does not make your life easier, what is it doing?