Trade wars, global uncertainty, and a steady domestic economy make for a lot of talk about business performance this year. Rising costs of materials, uncertainty about international exporting, and cash flow gaps are the biggest challenges for small business owners according to a 2019 Global Business Monitor Report. Even still, small business optimism is high for 2020.
Small Business Growth Optimism
According to this study, just under two-thirds (65%) of small to medium sized businesses believe the economy is doing well. Less than half of these businesses (43% of small to medium sized businesses) expect the economy to improve this year. 49% of survey respondents saw growth in their sales from the previous year, and two-thirds expect growth this year as well.
Small Business Growth Challenges
- Cash Flow
- Material Costs
- Credit Worthiness
With the optimism comes some realistic perspectives from very real challenges for all small business owners. Cash flow is the number one issue for small business growth. 42% of these small businesses reported cash flow at the top challenge for the past year, and nearly 40% of small businesses expect cash flow to be a top challenge to 2020 business growth. Cash flow is king for a small business, so these numbers dampen the small business optimism for 2020.
The second highest reported challenge for the past year and the future year is the cost of materials. Global uncertainty has increased these costs and therefore lowered profit margins. Passing the cost on to customers threatens client retention and allows larger businesses to undercut a small business, winning over these clients.
Challenges with Cash Flow
The biggest challenge with small business cash flow is getting paid on time. Lengthy credit terms can cause cash flow problems that become cyclical in business. One late payment from a customer may cause a late payment to a supplier, and so on. The next challenge is collecting from customers. The small business collections process can be a major hurdle for small business owners running a lean operation. One-third of treasury professionals do not have the time in their day to complete all of their allotted tasks. This means that credit management, receivables management, and collections may be under-served in a small business.
Improving Cash Flow
Selling on credit terms is expected in a B2B industry. Larger firms tend to negotiate lengthier credit terms with their suppliers due to their larger market share. Small business owners cannot afford this same luxury. This means waiting 30 to 90 days after making a sale or completing a project for customer payment. Your business expenses will continue to grow during this time, including material costs, payroll, and office space payments.
Invoice Factoring Creates Cash Flow Growth
Invoice factoring is a small business financing method that improves cash flow at a low cost. There is no debt on your balance sheet because factoring services simply advance client payment to your business. The money is yours, so why wait to get paid? After making a sale, you are eligible for invoice payment the same-day. The factoring company then waits the duration of credit terms and collects from your customer. This means the cash flow gap between making a sale and getting paid is eliminated. You can continue to grow your business without the hassle of waiting and tracking down client payment, and you have the working capital to make more sales!
Aiding in the Collections Process
Invoice factoring companies help with the collections process. First, your customer pays the factoring company directly. This means that you don’t have to handle invoice verification or customer follow-ups once you make a sale. Instead, the factoring company will reach out to your customer and collect payment after the agreed-upon credit terms have expired. Your business is funded immediately upon completing the sale and submitting the invoice to a factoring company like Eagle Business Credit. There is less risk in customer non-payment because Eagle offers free credit monitoring to your customers. You don’t want to do business with someone who will not pay you, so we can prevent that from happening. Facilities that are non-recourse mean that your business has no risk in the event of customer non-payment. Instead, the factoring company absorbs the loss and you continue to grow.
Business Owners Seeking Financing With Poor Credit
Bad debt in your past can prevent traditional lending institutions, like banks, from extending credit to your company. This is a major barrier to small business financing and inevitably growth. Online loans and merchant cash advances will offer financing to a small business at an inflated cost. This is where invoice factoring is a benefit to your company. Factoring services are offered to small business owners that sell business to business on credit terms. Business owners with poor business or personal credit are not rejected. Instead, credit-worthiness is based on the strength of your receivable and customer. With average fees around 2% to 4%, invoice factoring is inexpensive. With options like free same-day funding, invoice factoring is immediate. And application processes typically take between one and three days. That means your business could apply today and get funded tomorrow. There is no waiting for business growth because there is no waiting to get paid.