Bernard Linney

Properly managing a company’s cash flow requires the ability to keep more money on hand, mitigate the impact of high financing costs and continually monitor customer payments. Sounds easy doesn’t it? Well, most business owners agree it’s never that simple. However, managing cash flow can be made easier when companies opt to lease equipment & machinery as opposed to outright cash purchases. Not only does it help to retain more cash, it also protects the company against risk. In fact, equipment financing & leasing is an essential criteria of better cash flow management. So why is leasing a more viable option than purchasing?

One of the more important rules of personal wealth management dictates that individuals should purchase appreciating assets and lease depreciating assets. It’s no different in successful business management where an outright purchase is not only costly, but incredibly risky. Companies must measure the risks of obsolescence, damage and the constant threat of buying the proverbial lemon. However, there is another reason leasing is preferred. Simply put, leasing keeps more money on hand and empowers the business to better manage its finances. Short-term cash is maximized through leasing. Leasing allows companies to monitor the performance of equipment without concern of being locked in with a long-term contract. More importantly, it provides companies with the flexibility needed to stay up-to-date with the latest product & service offering. If an upgrade is needed, the company can switch requirements. How popular is leasing? Well, according to the Equipment Leasing and Financing Association, eight of ten U.S. enterprises lease most of their equipment. Leasing can be used to justify the biggest of capital expenditures to the smaller needs of a new photocopier, fax machine, computer or mobile phone.

Equipment financing is an affordable alternative to the high costs of purchasing. It allows companies to lease deprecating assets and benefit from yearly tax deductions. It improves cash flow while minimizing the impacts of equipment obsolescence. Today’s leasing options allow companies to lease all kinds of equipment and office needs. It allows them to keep more money in their business while mitigating their risks.

There are many signs that the economy is improving. Job growth is steady, and commodity prices are declining as investors seek other growth opportunities in equity market. Companies are looking to grow in 2011; however, with the pace of economic growth still somewhat slow many companies are taking longer and longer to pay invoices.  How can the typical company finance its plans for growth? More importantly, what can businesses do to ensure they grow their business in 2011 and beyond? A key component to growth is having access to working capital but many businesses are not able to obtain the capital they need due to the ongoing credit crunch. Well, invoice factoring is a financing vehicle companies are turning to in order to ensure that their 2011 plans for growth are successfully achieved. What role can invoice factoring play in ensuring a business has a better chance at reaching its 2011 growth objectives?

Throughout this economic downturn, companies of all sizes have been forced to seek alternative financing options. In response to the global financial crisis, banks and credit unions have cut back on access to business credit.  Account debtors are taking longer to pay invoices and the cascading effect has reverberated throughout the global economy. In response, companies have pursued invoice factoring for its overall ease-of-use, its functionality and because it provides companies with immediate access to working capital. Invoice factoring works by allowing companies to use their customer’s unpaid invoice as collateral. The financing company advances a portion of the invoice’s value, typically 80%, to the company. The amount of that advance is based on the invoice’s age and the account debtor’s payment history. The transaction is not a loan but a purchase therefore no there is little emphasis put on the client’s financial statements and credit history. The decision to advance money rests with the ability of the company’s account debtor to pay. Once that account debtor does pay, the financing company refunds the difference back to the company and charges a fee for their services. Companies can have a running credit line on invoices, get paid much sooner (than having to wait for their account debtors to pay), and and use the capital for business operations.

Invoice factoring works because it provides companies with the flexibility to do what they want with their own money. This might mean reducing the company’s inventory holding costs by paying vendors and creditors sooner and or accruing discounts & incentives for prompt payment. Or, the company can use the money to enact their 2011 strategic growth plans. The benefit is that the decision is theirs and theirs alone.

The global recession has claimed many businesses over the last couple of years. A number of financially stable enterprises were simply unable to adjust to the changing financial landscape. Some failed because of a lack of available business credit, while others simply couldn’t get paid fast enough from customers. Many companies went from being perfectly healthy enterprises, to struggling ones faced with a growing list of customers taking too long to pay invoices. What’s especially difficult is that many of these companies might have avoided their fate had they taken the time to pursue invoice factoring. So, what is invoice factoring and how could it have helped some of these businesses? More importantly, how can it help companies in 2011 and beyond?

Invoice factoring is an extremely helpful form of business financing because it allows companies to use their unpaid invoices to secure the necessary cash so vital to their operations. Invoice factoring allows companies to better manage their cash flow and reduces the daily cost of money. There’s simply no need to continue to finance a customer’s business waiting for them to pay their invoices. Factoring works by allowing businesses to use those invoices to secure credit with a financing company. The financing company determines the amount to be provided based on the age of the invoice and the credit quality of the customer. Once that invoice is paid, the company is reimbursed the difference and charged a nominal fee. The decision to advance the company money is based solely on the age of the invoice and the customer’s payment history. There’s no need for the financing company to perform a credit check, or to review the company’s financial statements.

The daily cost of money is one expense many companies choose to ignore until it’s too late. It’s found in the company’s inventory, its business loans, credit lines and ultimately in its customer’s unpaid invoices. Over the course of this financial crisis, the daily cost of money became a serious issue for many businesses. Factoring works because it defeats the daily cost of money, improves a company’s cash flow position and empowers the company to do more with its own money. For 2011 and beyond, companies must take charge of their financing and invoice factoring is the vehicle that makes that possible.