One of the most challenging parts of running your own business is the unpredictability. Unlike being an employee with a fixed salary, there are many moving parts that can affect your cash flow. Late-paying clients, unexpected expenses, ebbs and flow in customer demand — all of these things can make paying your bills, employees and contractors on time a constant struggle. When there’s so much uncertainty around your incoming payments from clients, it can be nearly impossible to look to the future and grow and scale your business. Thankfully, there is a way that you can make your cash flow predictable, reliable and regular again. Read on to learn how to forecast future cash flows with factor financing.
What is factor financing?
Factor financing is when a financial institution or funding source pays a portion of your client invoices up-front. Other names for it include invoice financing, debtor financing, invoice discounting and cash flow financing. The business sells its accounts receivables to a third party (called a factor) at a discount, in order to get access to immediate cash. It can improve your working capital by drawing funds against your unpaid invoices.
When you use Key Factors for factor financing, you invoice your client, then send it onto us. We then pay up to 80% of your funds in as little as 4 hours, with the remaining 20% minus any accrued feeds to be released when your client pays us. The cost of factor financing can vary depending on the factoring company. Usually, a flat factoring rate is applied which will determine the factoring fee. At Key Factors, we only charge a flat daily rate on what you use. There are no ongoing monthly admin fees or annual charges associated with Key Factors’ invoice factoring service
How does factor financing help forecast future cash flow?
Factoring is an indispensable strategic and financial resource when it comes to forecasting future cash flows. While surprises can be nice when they involve fun things like flowers, cake or puppies, this certainly isn’t the case when it comes to your finances.
For example, if you have just started working with a new customer or client, it can be difficult to know how cooperative they are with payment terms. Without using factor financing, a business could be left waiting 30, 60 or even 90 days for this client pay. This may leave them completely blindsided and leave them unable to pay outstanding debts — let alone invest in more things that are going to drive their business forward.
On the other hand, businesses that use factor financing know exactly how much they are going to get paid and when. Having a more predictable cash flow will allow you to take on more work, hire more staff and grow your business.
Factor financing is not only pivotal for forecasting future cash flow, but also future business growth. The two are deeply intertwined, with poor cash flow being the number one reason 82% of small businesses fail. With the knowledge that they will be relying on factor financing — not the whims of clients and customers — to manage their incoming finances, business owners can make strategic decisions that are going to accelerate the growth of their business.
From this secure position, they are able to create a robust business plan that outlines a strategic plan to scale. They can decide in advance exactly when and where they will invest in tools, employees and education that are going to skyrocket their growth, rather than having to wait on cash tied up in their accounts receivable.
With Key Factors, funds can be released in as quick as 4 hours, factor financing can also allow you to quickly get on top of financial burdens, like ATO obligations. This can allow you to focus on moving your business forward, rather than focusing on past debts that need to be settled.
Is factor financing right for my business?
If customer payment terms or rapid growth is affecting your business cash flow, you may want to consider setting up factor financing to get instant cash flow from your sales invoices. At Key Factors, we service small to medium businesses from a range of industries. Whether you are a growing company requiring cash flow to service demands, a newly established company requiring working capital to expand, or you simply need to bridge the gap of slow payments, Key Factors can help.
Companies benefiting from Key Factors factor financing generally have a high level of customers on accounts for the provision of goods or services, and have an annual sales turnover ranging from $500,000 to $30 Million. Invoices relating to business-to-business transactions can be considered, not consumer receivables. We also only process invoices which are still within normal trading terms, and those that are for work fully completed, not progress claims.
Interested in learning more about how to forecast future cash flows with factor financing? Apply online, call us 1300 884 100 to find out more, or fill out an enquiry form and we will be in touch within 1 hour.