To Small Van Courier providing deliveries in Ireland.
To Small fashion importer and exporter
When an entrepreneur starts his own business, he knows that he is going to have to understand finance if he wants to survive. What he may not realise is that he will need more than just a basic understanding of how finance works in the corporate world if he wants to be able to run a profitable business. People who take the time to get advanced degrees in finance and economics prior to opening up a business understand the terminology used in the corporate world and have a very good foundation to work from, but nothing beats years of experience when it comes to making the best possible financial decisions for your business.
Corporate funding has become almost synonymous with bank borrowing to many new business owners. When a business needs financing for anything, the perception is that a bank loan or a credit account with a pre-determined balance is the solution that is best for every situation. In order to understand why this misconception can be dangerous to your business, you need to have a comprehensive and practical understanding of bank borrowing and how it affects your company’s bottom line. There is a time and a place for bank borrowing, but you may be surprised to find out that it is in your best interest to limit your organisation’s exposure to institutionalized funding.
Before we get into a discussion about the dangers of bank funding, we first need to introduce and examine the primary alternative to bank funding, which is known as factoring. In the financial world, it is always best to utilise the resources you have as opposed to piling on more debt just to fill the financial holes. For example, it makes sense to save money to buy a new television as opposed to putting the television on a credit card. When you use a credit account to buy your television, it adds interest and service fees to your initial balance that makes the overall debt more than just the price of the television. When you use your own cash to buy that television, you can enjoy it for years without worrying about monthly payments and compounding debt.
Factoring is very much like buying a television with your own cash. When you have an invoice funding account put in place by 1st Commercial Credit, you will be able to pay your company’s bills with the money that your company has generated through invoiced sales, instead of relying on interest-bearing credit. You can also save your company’s cash to invest in larger activities such as launching a new product or expanding your sales force. Paying for your corporate activities with your cash flow is just like sitting back and enjoying a television you bought in cash. You can enjoy the benefits of your investment without worrying about long-term financial implications.
Buying a television on credit has several negative implications. We all know that, with a little patience, we can save to buy that television with cash. But we are in such a hurry that we put it on credit so we can have it right away. The problem is that now you have reduced your available credit line by the amount of the television. If you have an emergency car repair come up, you may not be able to cover it because you already used the card for your television purchase. The same can be said for using bank funding to meet regular corporate obligations such as payroll and vendor bills. When you use your bank funding to meet those ongoing debts, you are reducing the amount of credit the bank will extend your way. If a real emergency comes up, your company may not be able to get funding because you over-extended your limit on payroll deposits.
Your television may have only cost a couple hundred pounds, but your credit card will add to the debt and make it a lot more expensive than you may think. If you only pay the minimum monthly payment on your credit account, then it could take months, or even years, to pay off the balance. In the meantime, you are being hit with service charges each and every month. If your payments are late, then you get late fees as well. The kicker is that your initial balance, service charges and late fees all get hit with interest at the end of your billing cycle. The credit account is adding debt you never even accrued to your card and then charging you interest for it. When it comes to bank loans and credit accounts for your business, you are getting the exact same charges added and paying a lot more than you should.
Now that we have a comprehensive understanding as to what factoring is and how it compares to bank lending, let’s see how all of this applies to your business. Your company generates invoices as it sells products and services to clients. Each invoice has a due date and, ideally, you would like to be able to count on receiving payment by that due date. You put the invoice in your sales ledger and then monitor its progress through your aging report. When the invoice starts to go past due, you are forced to turn to the bank to get the funding you need to make payroll and sustain operations. It is a vicious cycle that has to be broken if you want your business to grow.
Invoice financing through 1st Commercial Credit is the hammer that breaks the dangerous cycle of bank borrowing. We consider your outstanding invoices to be assets, which is something a bank would never do. Because we consider those invoices to be assets, that means that we consider them to have value. That value becomes collateral that we use to secure cash advances against the face amounts of your invoices. We transfer those cash advances directly to your account and that is how we provide you with the cash flow you need to run your business. You never have to go to a bank to get a loan to meet payroll, and you can plan your vendor bill paying schedule with confidence.
Once you sit down and examine the primary differences between factoring and bank funding, you can start to see why there really is not comparison at all. Factoring is healthy for your business because it utilises your company’s own revenue to sustain operations and pay bills. There is no cycle of hidden fees, late charges and interest to worry about, and you won’t have recurring monthly payments to wrestle with either. Factoring is based on a discount fee that is based on the invoice value that ranges in cost of 0.2% to 3% depending on the invoice size and sales ledger outstanding balance. Factoring does not add to your debt at all, which is why it is the preferred financing option for companies all over the UK.
The benefits of factoring are as clear as a high-definition television picture. When you fund your business using invoice discounting, you can reap the benefits right away and make your growth plans for the future. With bank lending, you will find yourself in an endless, downward spiral that can cost your business more and more money. In the end, it makes a lot of sense to change the channel on bank funding and contact 1st Commercial Credit today to get your invoice factoring arrangement in place immediately.