According to a report by The Hackett Group, larger firms take longer to pay their invoices. This ability, due to the size and power of these companies, improves their cash flow by having longer and longer payment agreements with suppliers. By waiting to pay suppliers, sometimes up to 120 days, large businesses are widening the gap between small businesses in working capital management.
Small Business Working Capital Management Practices
Meeting payment deadlines can be challenged by working capital tied up in your receivables. Doing business with larger clients that pay between 30 and 120 days can significantly strain your cash flow. Paying suppliers, meeting payroll, and covering overhead becomes stressful and uncertain each month. Cash flow management is a common concern for small business owners, and spending too much time on collections can harm other areas of your business.
Invoice Factoring as Working Capital Management
Waiting longer to get paid by your clients means waiting longer for business growth. Invoice factoring is a working capital funding solution that advances payment on your open invoices in as little as 24 hours. Your business no longer has to wait the credit term length to be paid. Instead, a factoring company waits the credit term length then collects from your customer. During this time, your business is free to grow with the early payment for goods or services performed.