Short-term Working Capital – Get it when you need it
Working capital is the cash needed by a business to handle the standard and usual daily expenses or business opportunities associated with the operation of the company. Working capital makes it easy and possible for business to meet their obligations to vendors and suppliers in a timely manner, which in turn helps to protect the credit rating, increase revenue and reputation of the business. While many businesses are able to generate short-term working capital through receipt of customer payments, there are always opportunities that arise and we don’t always have the cash available now. We call this opportunity capital
Many business experience seasonality in their cash flow and generate enough working capital to cover operations and grow organically. However when an opportunity arises, businesses have to jump on that contract, bulk purchase of inventory, supplies or advertising discounts. These opportunities don’t have the time to wait for cash to stockpile, you have to act fast.
There are many different approaches to obtaining short-term working capital when receipts from outstanding receivables are not sufficient to meet immediate needs.
One strategy is to talk to your bank or other type of lender. Most traditional lenders and banks take too long to understand your business and provide you with an answer. And the list of documentation required will take far too long and doesn’t allow to focus on the opportunity.
A second strategy is receivables financing. Although it is beneficial as a short term financing mechanism, the process is cumbersome, expensive and does not typically yield the amount of liquidity a business needs. Additionally in the long run, this system can lead to increased infrastructure time and costs, defeating to purpose of obtaining the financing in the first place.
The best solution for quick and easy access to working capital to obtain future receivables financing. This where a business sells a portion of future receivables or sales of the business at a discount. The business repays the financing through accounts receivable collections in the coming months, by having a small percentage of those receivables go towards repayment of the total obligation. By utilizing this financing your business can obtain the working capital needed now to buy equipment, expand your business or pay for that advertising program.
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