Things are going well for your business. You have several new orders that will keep your company running at near capacity for the next six months. Your recent growth has caused you to draw on your line of credit at the bank, and you’re almost at your credit limit. That’s fine because your biggest, most dependable customer always has a check in your office like clockwork. The cash flow that check generates will allow you to meet payroll on Friday and place the order for materials needed for the next project. You know cash is running it tight, so you requested an increase in your line of credit from your bank. The bank has told you that your business does not have enough equity[1] to qualify for an increase in your credit line.
Your largest customer is a national company, Really Big Co (RBC). You mostly deal with the local manager, but the payments for your invoices are processed at RBC’s corporate office on the coast. You have been working with them for the last year. In the past 3 months RBC has been significantly increasing their orders from you. This has allowed you to make some new contacts and develop new prospects. In fact, the material order for this week is for a new customer, ABC Manufacturing, that you developed from showing samples of the work you’ve done for RBC.
This week, the check from RBC arrives on Tuesday. Out of the four invoices submitted, only two are paid. You call the local manager, who you send all your invoices to.
“Yes, I got those invoices on time,” he says.
“I was a little swamped that week, though, and forgot to submit them to corporate for approval. I submitted them last week, though.”
Your stomach starts to sink. Next you call RBC’s accounts payable office.
“Those invoices were just approved and now are in our payment queue” said the accounts payable clerk.
Based on previous experiences, you know once the payment is approved you still need to wait another 20–25 days to receive RBC’s check. That means you only have enough cash for payroll this week. And with your line of credit tapped out your material order will be delayed. This could set you back on your completion date for ABC Manufacturing.
You also need to review the budget to see how much overtime you can allow to avoid slipping your promised ship date for ABC Manufacturing. You know you can find a good cash flow solution but you have more meetings with new prospects and need time to develop a proposal for them. If only you had more time…
Consistent Cash Flow: A Common Small Business Problem
Most small businesses are in the situation where getting paid promptly on each invoice matters. Getting paid promptly ensures you can meet payroll, buy materials, pay rent and insurance, and achieve vendors discounts. For a small business, even a small delay in your accounts receivable can cause ripple effects in the rest of your operations. A hiccup in the payment of your outstanding invoices steals time away from focusing on sales, marketing, client relations, or well deserve R&R.
Commonwealth Capital Helps Businesses with Cash Flow
Commonwealth Capital is in the business of financing companies that are experiencing high growth of their sales and accounts receivable. Factoring with Commonwealth Capital can provide you with the cash flow you need to keep your business running smoothly. We provide a flexible working capital source that can increase as your sales grow, helping alleviate cash flow crunches caused by rapid growth. Having steady, consistent cash flow can help you weather the storms of working with large companies. As a small business person, the most precious thing you have is time. And your time has better uses than following up on each invoice.
At Commonwealth Capital, we notice if an invoice has been paid out of order. We establish and maintain rapport with your customer’s accounts payable department. Acting as your outsourced credit department, we research invoices that have been skipped or paid out of order. If necessary, we resubmit the invoice, set up a time for follow up, document what is being done, and provide a progress report on when it is expect to be resolved. If there are changes in invoice submission procedures we can help you follow up putting those in place. A timely resolution to an occasional skipped invoice should not cause you to divert attention away from growing the company.
Let Commonwealth Capital help you with your cash flow needs. We solve the cash flow challenge for small businesses every day and would love to work with your business. Contact us to find out more.
- Also referred to as “retained earnings”. ↩
