It would be great if every business always had enough access to cash to do whatever it wants whenever it wants but that’s not always reality.
In business we all know having access to working capital and strong cash flow are critical to success.
The reality is some customers don’t pay on time, there can be disputes and bad debt as others go out of business.
All of these issues can have a dramatic impact on keeping your own business surviving and thriving during tough times.
The Importance of Revenue Recognition
Knowing your numbers in business is a strong asset.
Part of knowing your numbers is knowing your expenses and your business revenue. Almost as is important is when you recognize revenue because the sooner you’re paid the sooner you can pay expenses and invest back into your business and staff.
The cash flow in your business can make a big difference to your ability to meet your obligations as well as help or hinder your ability to grow.
How to keep doing business?
If you’re billing on an invoice a way to bring your revenue recognition forward is with invoice finance.
Invoice finance, also known as debtor finance or factoring, is a line of credit secured by your accounts receivable with the amount of credit available tied to the number of invoices you have issued.
How does invoice finance work?
If you write an invoice for work completed for say $10,000, you could have approximately $8500 in available credit the day you issue the invoice.
When your customer makes their payment this clears any amount you might have drawn up to $8500 and the balance comes through to you that day.
In this way, up to 85% of your invoice value could be recognized the day you issued the invoice.
If you had $1,000,000 in invoices issued you could have up to $850,000 in credit available to you.
Final Tips
The benefit of an invoice finance facility is that it smooths out the cash flow peaks and troughs. By being able to bring revenue recognition forward you can pay wages and other expenses when dealing with seasonal differences and natural cash flow cycles.
Related Links
Bringing Revenue Recognition Forward in a Commercial Construction Business
Case Study: A Line of Credit Without Property Security
Case Study: 2 Businesses, 2 Lines of Credit
