How a Factoring Company Can Help Your Seasonal Business
Written by moxysupport on April 28, 2015
Those running seasonal businesses, from Christmas tree farms to landscaping companies, even hotels or restaurants in tourist areas, often have unique cash flow challenges. Running a seasonal business takes incredible budgeting and self-discipline, not to mention smart planning, to get it through the downtime and still meet your recurring expenses. A factoring company can help.
During the slow season, you may cut your payroll expenses down to virtually nothing, but you may still need to pay your own salary to live. Additionally, you’ll have to keep the lights on, pay your lease or mortgage, pay for any vehicles, pay your bookkeeper, and a number of other expenses that don’t go away just because your company has little-to-no cash flow.
Seasonal businesses have a few choices to keep going when the going is tough. You can find another service to offer during the off-season. Landscaping companies can still offer certain landscaping services even though the grass is growing slower, or can develop expertise in another area entirely and open a second business. If you own a hotel in a tourist area, maybe you can work on hosting conventions in your hotel, or open it up to independent business owners holding classes or seminars.
All these things will require additional cash flow. At the very least, you’ll need money to market your new business and people on payroll to help you run it. Plus, you like your business. Why would you want to focus on doing something else?
For many small business owners with revenue between $1 million and $50 million, a factoring company holds the solution.
What Is a Factoring Company?
A factoring company will fund your invoices before they are paid by your customers. The process is often called “accounts receivable factoring.” You’ll receive the money upfront for invoices due, even if those invoices are payable on Net-30, Net-60 or Net-90 terms. The factoring company will pay out 85 percent of your approved receivables before they come due. In turn, your clients will receive a notice that they should pay your factoring company rather than paying you directly.
When your customers’ pay the invoices, the factoring company pays you the other 15 percent of your receivables, minus a factoring fee.
Essentially, you are selling us your invoices for 85 percent of their cash value upfront, plus the balance minus fees when they come due.
Benefits to Using a Factoring Company
Unlike taking out a small business loan or using a credit card, you don’t have to pay interest on the money (only our fee), and it won’t affect your credit rating or show up on your credit report. You won’t show a debt on your balance sheet, either. If you are seeking venture capital or other funding, you’re not affecting your net profits by adding debt, and you’re actually improving your cash flow statement.
But the real benefits to using a factoring company come with having that money to spend on payroll and everyday business expenses, to keep your company solvent during your off-season. If you have a seasonal business with a short down-time, you can time your accounts receivable to use small business factoring to provide income throughout those slow months.
Don’t suffer through another slow season. Contact a factoring company like U.S. Funding to see how we can help you today.