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When Cash Flow Becomes a Problem, It Creates More Problems

When Cash Flow Becomes a Problem, It Creates More Problems

If there is one thing every business owner knows, it is just how critical cash flow is to maintaining daily operations. A lack of sufficient cash flow isn’t just a minor inconvenience; it is actually a serious problem that often leads to more problems down the road. That’s why so many business experts spend so much time trying to teach business owners how to maintain cash flow.

If you are new to the business world, cash flow is just what it sounds like. The Investopedia website defines it as “the net amount of cash and cash equivalents being transferred in and out of a company.” We can make it even easier: cash flow is the amount of cash coming in and going out. That’s it.

Think of cash flow as a river. Water comes into the river by way of rain, melting snow, underground springs, etc. It flows the entire length and empties into a lake or ocean. If you want your business to stay healthy, your cash flow river needs to keep flowing. If the river either dries up or goes stagnant, you have problems.

Consequences of Poor Cash Flow

Our specialty here at Thales Financial is invoice factoring. Many of our clients rely on invoice factoring to maintain positive cash flow during seasonal slowdowns and at times when invoices aren’t being paid fast enough to meet immediate financial needs. We believe invoice factoring to be one of the best tools ever for maintaining positive cash flow.

That said, the consequences of poor cash flow are very real. Here are just some of them:

  • Payroll Shortfalls – The one business need that relies exclusively on cash flow is payroll. A company cannot pay its workers if it does not have cash in the bank. Employees do not work on credit.
  • Overhead Shortfalls – Like payroll, companies meet their overhead expenses with cash assets. They need cash to pay the rent, cover the utilities, etc.
  • Marketing Shortfalls – When cash flow falters, companies need to cut expenses somewhere. Marketing is often near the top of a list. Although marketing budgets are easy pickings for cost cutting, pulling back on marketing often leads to reduced sales.
  • Inventory Shortfalls – Limited cash flow can inhibit a company’s ability to stock inventory. Without inventory, a business is sunk.

We concede that businesses operate on a pseudo credit basis, which is to say they take anywhere from 30-60 days to pay outstanding invoices. They expect their vendors to give them some time to pay. But paying still requires cash. If a company doesn’t have it, where is it going?

Being on the Other End

Your company may be on the other end of the invoice equation. You have outstanding invoices you’re waiting to be paid. Until they are, your cashflow is limited. Yet you have your own financial needs waiting to be met. So what’s the solution? There are numerous options, with invoice factoring being among them.

Invoice factoring involves you selling some of your unpaid invoices to a factoring company like Thales. You get a certain portion of the money at the time of sale. You get the remainder once the invoices are paid. The factoring company charges a fee for its services, a fee that is deducted from the second payment on your invoices.

We work with plenty of clients who utilize invoice factoring to maintain positive cash flow. Invoice factoring is a workable solution with hundreds of years of history behind it. We offer it to companies who use it for one simple reason: invoice factoring works. It is as simple as that.