We are in the business of factoring accounts receivable on behalf of our clients looking to leverage unpaid invoices for fast cash. Clients come to us for a host of reasons, not the least of which is maintaining positive cash flow. But every now and again, we work with a client that needs to facilitate faster growth due to lower margins.
You are undoubtedly familiar with the fact that margin equals the percentage of revenue that constitutes profit. It is a pretty simple business principle. You might also know that some industries have lower margins than others. For example, retail fuel sales have a lower margin compared to high-margin alcohol sales.
New businesses in some industries are barely making it with their margins. They cannot increase prices much higher or they risk alienating their customers. But the combination of stagnant pricing and lower margins makes growth difficult. Enter accounts receivable factoring.
Earning Their Money on Volume
Companies involved in lower margin industries need to make their money on volume more than price per unit. But the only way to increase the volume is to grow. How do you grow a business without sufficient cash flow? Do you see the difficulty here?
Being involved in a lower margin industry generally means having access to enough cash to facilitate quick growth. The faster a company can grow the faster volume can be increased to the desired level. Then, margin isn’t as important as it might be for other industries.
Turning Invoices into Cash
Our role in helping lower margin companies grow is providing the cash they need to grow quickly. Instead of waiting 30-90 days to get paid on outstanding invoices, they sell their invoices to us. We pay an advance which is calculated as a percentage of the total. Once invoices are paid, we remit the remaining balance minus our fees.
In essence, our clients are turning invoices into cash faster than would otherwise be the case. When you are in a low-margin business and relying on volume to keep things going, getting paid right away helps a lot. That is the whole point.
Capital-Hungry Businesses Need Cash
As a company that specializes in accounts receivable factoring, we also know that some types of businesses are more capital hungry than others. The most capital hungry among them tend to be businesses with exceptionally high overhead costs. Overhead equals cash going out the door. The more overhead, the more the need for a solid flow of capital.
The thing about capital-hungry businesses is that high profit margins may not be enough to keep cash flowing in. So in such cases, accounts receivable factoring can be very helpful. Factoring unpaid invoices keeps the cash flowing. As a result, immediate capital needs can be met without issue.
Ideally, the best kind of business is one with few capital needs and a high profit margin. But how many of those businesses exist? Not many. Most businesses deal with one situation or the other. It is either capital hungry or low margin. If you are dealing with both, you are at a decided disadvantage.
Invoices Level the Playing Field
Accounts receivable factoring utilizes unpaid invoices to level the playing field. Whether your company operates on lower margins or happens to be in a capital-hungry industry, there is no need to wait 90 days or longer to get paid. We factor invoices so that you get paid sooner, rather than later. If that provides the cash you need to facilitate faster growth, we are happy to be able to help. Your success equals ours as well.