WHEN IS INVOICE DISCOUNTING A GOOD FIT? (July 13, 2016)
1. Rapid Growth:
If a business is experiencing rapid growth and selling on credit, the more it grows, the greater the sum tied up in accounts receivable will become and puts strain on working capital resources. This will often be compounded by the need to hire more staff, or commit to other extra overheads and one-off expenses due to the increased activity generated by the growth.
Maybe a business is restructuring its activities. Perhaps it has to reduce the workforce, sell assets or make other changes in their business. Whenever a business has to do something like this, the increased income or reduced costs or increased available working capital will take a while to materialise. If they are already under some cash flow pressure, problems could occur before the benefits of the restructuring are seen.
3. Unforeseen Problems:
It happens. A bad debt. A key customer changes suppliers. A production problem. The list goes on. We all know businesses experience all sorts of problems. If the problem effects cash flow temporarily, working capital may come under pressure.
4. An Opportunity:
There is an immediate opportunity, such as obtaining some stock at a discount, buying out a competitor or securing a larger than norma sales contract which requires new/additional costs to be incurred upfront to undertake the work. Whatever the opportunity, the business may need extra cash short term to take advantage of the opportunity.
Invoice discounting allows a business to maintain good cash flow, keep current with their suppliers and overhead commitments whilst working through these scenarios. Unlike with other alternative solutions, they will not add to legacy of debt and will not sacrifice equity. With Interface a business can use invoice discounting for as short or long a time as they like.