Uneven revenue cycles are not uncommon in business. New businesses, small businesses, even large and well-established corporations have expenses that outpace their revenue. However, there are ways to smooth out uneven revenue cycles and improve cash flow in the process.
Why Do Uneven Revenue Cycles Occur?
Some analysts like to point to increased expenses as the cause for uneven revenue cycles. Others point to a lag in sales. The reality is that even when sales are very high, businesses can experience uneven revenue cycles. The root cause is neither sales nor expenses, but rather revenue that is tied up in unpaid receivables. When a business makes a sale and issues an invoice, the staggered payment schedule has a built-in waiting period of 30 to 90 days. That means the business has to go a month or longer before it sees revenue from the sale. During that period, the business needs to cover overhead, make payroll, pay for marketing, and more, which can place a severe strain on cash flow.
The Loan Trap
When there are uneven revenue cycles, businesses often use short-term loans to smooth things over. A loan, by its definition, places debt on the books and impacts credit ratings. While cash flow is temporarily rightsized, future revenue needs to be split between regular expenses and repaying the balance on the loan, which places a further strain on finances. If uneven revenue cycles are recurring, taking out consecutive short-term loans can push a business into bankruptcy.
Correcting Uneven Revenue Cycles
To simultaneously correct uneven revenue cycles while avoiding the debt trap, businesses use accounts receivable factoring. Instead of dealing with staggered payments schedules of 30 days or longer, factoring frees up revenue by converting unpaid invoices into cash. The simple exchange of receivables for cash does not impact credit rating or place debt on the balance sheet. Businesses can use factoring services to correct uneven revenue cycles, or to improve cash flow and prevent those issues from happening in the future. The fast turnaround on invoices boosts cash flow so businesses can cover expenses and build up reserves for future plans.
New Century Financial provides fast and transparent accounts receivable factoring services to businesses nationwide. We will convert your unpaid receivables into cash and make funds available within 24 hours. Contact our offices today to get started.