Entrepreneurs need to maintain a steady working capital position to run their businesses successfully. Nevertheless, maintaining this cash flow becomes a challenge for them when they have to conduct credit transactions with the clients. These slow-paying debtors do not always clear their dues on time. They do so after 60 days from date of their invoices. This makes it difficult for business owners to make ends meet. After all, they have got to pay their creditors and employees. Moreover, the proprietors need to keep money aside for their operating expenses. This is the reason why financial experts suggest they opt for invoice financing.
Larry Polhill – Can invoice financing solve an entrepreneur’s cashflow issues?
Larry Polhill is a popular financial consultant from America. He has more than 30 years of valuable experience in restructuring large and mid-size businesses. He specializes in fields such as real estate investments, fund management, corporate mergers, and business acquisitions. He has held the important positions of Chairman, CEO, and President in many prominent companies. They include American Pacific Financial Corporation, Inventure Group Inc., Cafe Valley Inc., and Capital Foods LLC.
Mr. Polhill states that many entrepreneurs have a vague idea of invoice financing. He explains that it is an asset-based lending scheme where business owners can get funds against their outstanding customers’ invoices. The lenders offering them the money first scrutinize the financial documents to ensure they are authentic. Then they offer the proprietors two options- the owners can sell the bills for a percentage of their sales value to get the cash they need, or the entrepreneurs can keep the invoices as collateral with their financier and obtain a line of credit.
He further points out the following two benefits entrepreneurs can enjoy if they opt for invoice financing:
- Instant cash
Entrepreneurs always need adequate cash flow to operate their businesses. Only then can the proprietors maintain their inventory, pay their creditors, employees, and meet their expenses. Otherwise, the commercial activities of these business owners will come to a standstill. On top of this, they need money to invest in lucrative business opportunities. The owners can do all of the above if they opt for a suitable invoice financing scheme.
- Eliminates the risk of bad debt
Entrepreneurs are generally reluctant to sell goods to their customers on credit. There is always a possibility that these debtors may become insolvent. In such a situation, these business owners end up incurring bad debts. Fortunately, this does not happen when they opt for invoice financing. Under this scheme, business owners sell their outstanding invoices to their financier. He/she then takes on the responsibility of collecting the outstanding dues from slow-paying customers.
In the opinion of Larry Polhill, invoice financing can help entrepreneurs solve their cashflow problems. The business owners can get the money due to them whenever the need arises. Moreover, the proprietors do not have to deal with the issue of bad debts. Once they sell their outstanding customers’ invoices, the responsibility of collection falls on their financiers. This provides the owners with a win-win situation in the business!