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Managing Uneven Revenue Cycles Without Taking on Debt

By February 15, 2022April 26th, 2022Business

Uneven revenue cycles occur in every industry. Even when sales are high, revenue is not guaranteed. Invoices with staggered payment schedules mean businesses may not see payments from customers for 30, 60, or even 90 days. During that time, businesses still need to pay bills, make sure employees are paid, cover expenses, and more. Uneven revenue cycles can flip cash flow upside-down, and businesses need to scramble to find a way to smooth things over and rightsize their finances. There are two ways to manage uneven revenue cycles, and one can do more long-term harm to your cash flow.

Managing Uneven Revenue Cycles with Loans

Short-term loans have been the go-to answer for businesses that need to smooth over uneven revenue cycles. After all, loans are easy to understand. Businesses put up collateral, take a hit to their credit ratings, and take on debt in exchange for capital. Short-term loans offer a quick fix, and the balance can be repaid in full over time. But what if uneven revenue cycles are recurring? During turbulent economic periods, such as a pandemic, or when the stock market seems more like a roller coaster, businesses need to hold onto as much revenue as possible. Taking out consecutive short-term loans to mitigate uneven cycles can eat into revenue retention, decimate business credit ratings, and rack up debt to the point that more revenue is going to repay the balance of those loans than it is to cover regular overhead and payroll. Short-term loans create a very slippery slope, and many businesses spiral into bankruptcy by relying on them to correct uneven revenue cycles. Trying to dig a business out of debt on top of regular expenses, payroll, and overhead can cause operations to grind to a halt.

Managing Uneven Revenue Cycles with Factoring

Historically, factoring has existed since well before the lending system as we know it. Factoring dates back to ancient Mesopotamia and has been used to correct revenue cycles and cash flow issues. Despite being a tried and true method, very few people understand factoring and the benefits it offers to modern businesses. Simply put, factoring is a fast process in which unpaid customer invoices are sold for cash. Outstanding invoices are submitted for factoring, the factoring company processes those invoices for a small fee, and then revenue is delivered to your business. This is a perfect fit for businesses that issue invoices with payment windows of a month or more. Because factoring is a simple sale, businesses get to preserve credit ratings and avoid debt being placed on the balance sheet. As opposed to a loan, there is no drawn-out approval process or fixed payments. The transaction is simple and cash is made available much faster than waiting 30 to 90 days for customer payments.

Factoring Offers Additional Benefits

While factoring is a great way to manage uneven revenue cycles without the debt and other burdens associated with short-term loans, it also offers a number of other benefits to businesses. Factoring by its very nature accelerates cash flow for businesses, allowing them to make payroll and cover expenses. Factoring also scales to sales, so the more invoices that are generated, the better the financial situation, allowing businesses to build up reserves and achieve rapid growth without relying on debt-based loans. Finally, factoring prevents invoices from aging out to collections. Performing collections on overdue invoices can add up to 45 days on top of the regular payment schedule, which means businesses could be waiting many months before seeing payment from some customers. When businesses use factoring, invoices do not get a chance to age out because they are converted to cash quickly. In a sense, factoring helps to automate the accounts receivable department.

Start Managing Revenue Cycles Today

At Single Point Capital, we offer comprehensive factoring for businesses of all types. We can provide the immediate setup for businesses, whether they are looking to correct uneven revenue cycles, or looking to automate accounts receivable, accelerate cash flow, and achieve growth. We have the ability to turn unpaid invoices into cash and make funds available within a single day. To get started, contact the team at Single Point Capital today.

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