Every business needs to stock the equipment and supplies necessary to run daily operations. Even here at Thales Financial, where invoice financing is our specialty, we need to stock certain things. We need computer equipment and office supplies. We need software. We could be shut down if we didn’t pay attention to stocking what we need to keep on hand.
Fortunately, our needs are not as extensive as other types of businesses. There are some companies for whom remaining well stocked is a tricky matter. We are thinking retail, hospitality, and other industries where supplies go out as quickly as they come in.
A Good Understanding of Business
The key to stocking what you need to keep things running smoothly is a good understanding of your particular business. Imagine a pizzeria owner. She needs to know approximately how many pies she will sell in given week. She needs to know how much of each ingredient she needs on hand to make those pies. In essence, she really needs to know the volume of her business. That includes knowing:
- what her customers like
- when they are most likely to buy from her
- how much they are likely to buy
- how often they come back to buy again.
This particular example works very well for illustrating how tricky stocking can be. The pizzeria owner knows what she normally needs on a weekly basis. But she is also trying to grow her business. So she must build in some extra to accommodate new customers.
The last thing she can afford is to run out of a key ingredient in the middle of a busy weekend. On the other hand, she doesn’t want to stock too much on the outside chance that some of the inventory will not get used before it spoils. It is a real balancing act.
A Good Handle on Cash Flow
In addition to having a good understanding of her business, the pizzeria owner also needs to have a good handle on cash flow. All her vendors expect to be paid on time. Whether she has 10 days or 30, she needs to pay invoices on time if she expects her vendors to keep doing business with her.
That can be tricky at times. Hopefully, the pizzeria owner’s daily sales receipts are enough to cover inventory needs. But what about companies who issue invoices with extended terms, rather than being paid in cash up front? Invoice factoring is always on the table.
How Invoice Factoring Works
Invoice factoring is a way to meet short term financial goals by turning unpaid invoices into cash. Those invoices are sold to a factoring company, like Thales. The invoice factoring company provides a service for which it charges a fee, known as a factor. It can be a flat fee or percentage of the invoices in question.
To a company attempting to maintain its inventory in the midst of a cash crunch, invoice factoring can be a lifesaver. Selling invoices is simply leveraging an existing asset to bring cash in when the business needs it. The judicious use of invoice factoring can mitigate some of the financial challenges of stocking the equipment and supplies a company needs to do business.
We have seen clients utilize invoice factoring for a lot of different purposes. Among them is maintaining their stock of necessary equipment and supplies. Without enough of the things a company needs to do business, serving customers becomes more difficult. Even though stocking what a company needs for daily operations can be a tricky proposition, getting it right is non-negotiable.