How to find Working capital finance?
It is capital that is used in day–to–day operations of the business. It is the balance from the current assets minus the current liabilities.
A shortage of working capital creates Cash flow problems in the business.
There are two ways to find your business’s working capital: factoring and discounting your invoices. When you run a business, you might have credit customers and have to wait for the payments of your invoices. That creates a cash flow problem because you have weekly paid workers to run your business. Even if your business is making a good profit, that does not mean that your cash flow is reliable; it is not uncommon for business owners to always find this problem. As a new business owner, having lots of cash in your bank account is impossible. The cash flow issue might get better in the long run but big problems at the start of any business. Therefore, you must find ways of raising working capital to run your business smoothly.
How will you raise your working capital?
Are you going to look for a bank loan?
Are you going to use your credit cards?
Getting more loans is impossible as you would borrow money to set up your business. Therefore the only other option is to discount or factoring your invoices. Discounting invoices is not getting a loan but selling your invoices at a discounted price to a factoring company. This method will give you immediate cash to solve your cash flow problem. When you choose this method, you will have control over your sales ledger and debt collection. It is possible only if you have the human resources to manage your sales ledger and debt collection. If your company is small and short-staffed, the other option is to factor in your invoices. Here the lender will do the group and the credit control.
The benefits of factoring and discounting invoices
The cash flow problem solved
Helps to grow your business
The factoring company manages the credit control, and you have more time to develop your business.
We are funding secured without requiring other assets.
Making prompt payments to suppliers will help you to get discounts.
Useful for new businesses
It helps grow the company; you can return the money.
Factoring and discounting offer competitive prices and excellent advisory service.
Invoice discounting
In this method, you will have control over your debtors. Therefore, you could maintain confidentiality. That helps the stability of your business.
Invoice factoring
Here the lender will have complete control over your sales ledger the secrecy gets affected. As a result, your suppliers may become reluctant to give you support.
Final words.
Risk is involved in any business, so factoring and discounting also have risks. The lender has less control over the payments because it depends on the receipts. The lender has to receive the prices according to the agreed date or may not receive them at all. For this reason, discounting is done for big companies with sizeable creditworthy client bases. But factoring is usually used by smaller companies as the lender has more control over the sales ledger. Therefore it is up to you to choose which method suits you better. But any business that gives long credit terms will have problems that can be solved by factoring or discounting invoices.