In an age when business moves at a much faster pace than ever before, almost every business outside of the retail space is still struggling with the lag created between the point at which sales are made and the window clients have to make payments for goods and services. Fortunately, there is a way to achieve better parity and eliminate obstacles in cash flow.
Why is there lag between sales and revenue?
Not every business operates with a point-of-sale system. In fact, many businesses across every industry issue invoices instead. Janitorial and maintenance companies, manufacturers, attorneys, distributors, staffing agencies, construction businesses, and more issue invoices with payment windows of 30, 60, or 90 days. The staggered payment window has been a long-standing business, and probably will not change anytime soon, despite technology driving faster sales and payment processing methods. The reasoning behind staggred payment schedules is to allow clients to receive, use, and inspect the product and services they pay for, while also giving them a grace period to accumulate the money necessary to pay the amount owed. On the business side of things, staggered payment schedules are designed to create a constant positive cash flow from sales. While this theory works on paper, it rearely translates to the the real world. Staggered payment windows create gaps in cash flow. Even a business that makes a lot of sales can experience tightened cash flow because payments for goods and services are staggered by 30 days or longer.
The lag between sales and revenue can have dire consequences, such as not being able to make payroll, the inability to cover overhead, and it presents a barrier to achieving business growth. In extreme cases, businesses have to cut back hours of operation and limit the number of orders they accept, because staggered revenue cannot match the amount of capital needed to operate at full production. Frequently, businesses end up taking out short-term loans to smooth over gaps in revenue, but the debt and impacted credit ratings only exacerbate cash flow issues in the long run. The amount of revenue trickling in is suddenly diverted between regular operations and repaying loans, which can quickly lead to bankruptcy.
There is a solution for achieving better parity
In order to achieve better parity and remove gaps in revenue caused by staggered payment windows, businesses use accounts receivable factoring. When receivables are factored, they are exchanged for capital, eliminating the forced lag created by payment windows of 30 days or longer. This allows businesses to cover overhead and payroll, and build up capital reserves to act on growth plans. Factoring is available to businesses across all industries, and it does not impact credit ratings or place debt on the books. In fact, factoring enables businesses to become self-reliant, less dependent on debt-based loans, and able to achieve growth much faster than businesses that play the waiting game on customer payments.
At Single Point Capital, we provide comprehensive factoring services and make funds available within a single day. Contact our offices today and start improving your cash flow.