If your business is considered seasonal, and is typically very busy during certain months of the year and very slow during other months, it’s important that you learn more about invoice factoring. If you have been in business for more than a few years, you have probably already realized that a seasonal business can face serious financial challenges during the slow season. Surviving the slow months requires adhering to strict budget constraints and effectively planning ahead.
Running a seasonal business requires a true dedication to the success of your business. While money only comes in at certain times of the year, your business has expenses that must be paid year-round. Take, for example, a landscaping company. If the company is located in a climate that endures ice, snow and cold weather six months out of each year, the company probably only earns money during the warm months. But even though there is no money coming in during the cold months, the business must still pay recurring monthly bills.
When money is not flowing into a seasonal business during the slow months of the year, waiting for an outstanding invoice to be paid can cause financial distress. If a company is relying on outstanding invoices to be paid, but customers hold the invoice for 60 or 90 days, the business can suffer. This is the type of scenario in which invoice factoring can help a seasonal business survive its slowest time of year.
What is Invoice Factoring?
Invoice factoring, which is also often referred to as accounts receivable factoring or accounts receivable funding, is the process by which a seasonal business sells its outstanding invoices to an invoice factoring company. The invoice factoring company immediately pays the business a large percentage of the value of the invoices, and then waits for the customers to pay their invoices. The invoice factoring company is essentially reimbursed when the invoices are finally paid by the customers.
For a seasonal business, the process of utilizing accounts receivable factoring is quick and easy. There is a relatively small fee the business must pay the invoice factoring company for its service, but the access to quick cash can be quite beneficial to a seasonal business.
Much different than a traditional bank loan, invoice factoring does not require a seasonal business owner to apply for a loan and pay interest on the loan until it is paid in full. Seasonal business owners appreciate the fact that accounts receivable factoring does not require the accumulation of debt.
Managing Cash Flow During the Slow Season
Many seasonal business owners are skilled at keeping operational costs at a minimum during their slow season. When you utilize seasonal employees, you don’t have to pay them when your business is slow. Other costs can also be kept quite low during your slow season. However, if you rent a storage space, have company vehicle loans, or have certain employees that work year-round, you must have the financial means to pay for all of these expenses no matter what.
When accounts receivable factoring is used as an effective cash flow management tool, you can rest-assured that you will be able to survive the slow season – at least from a financial perspective. Having a system in place that prevents your seasonal business from falling into debt during the slow season is essential. Seasonal business owners that understand the benefits of invoice factoring can place their business at a true advantage against other seasonal businesses that opt for other types of financial assistance during the slow season. Since invoice factoring does not involve a loan, there is no chance of falling into debt by utilizing this effective financial tool.
What do Seasonal Business Owners Do During the Slow Season?
Seasonal business owners often use their slow months to operate another business. For example, a landscaping business owner might run a snow plowing business during the winter. With more than one business to run, a business owner typically has very little time to spend collecting outstanding invoices. When invoice factoring is implemented, the invoice factoring company can take primary responsibility for making sure all outstanding invoices are paid.
A seasonal business owner might also use the slow months of the year to make future plans for the business and get organized. It is much easier to dedicate time to such efforts when stress about cash flow does not exist. Challenges related to outstanding invoices can be alleviated when an accounts receivable financing company provides upfront cash for invoices that have not yet been paid.
Owning and operating a seasonal business can be a complex endeavor. But with invoice factoring, there are additional possibilities for financial success. Weathering the slow season can be a breeze when accounts receivable financing is selected as a cash flow management tool.
Editor’s Note: Greg Curtiss is President of The Invoice Bankers. Mr. Curtiss previously was a lawyer and has passed the CPA exam. He has been in business for over 25 years. You can reach him by calling 303-740-7600 or 1-888-740-1750.