Working capital is at the heart of every business. Whether it’s used to maintain operations and make payroll, or for growth projects, healthy working capital reserves are essential for long-term success. But for many small businesses, building healthy working capital reserves can be a major challenge.
Expect the Unexpected
It is not enough for businesses to simply tread water. Working capital reserves ensure businesses can pay overhead expenses, but there’s much more to success than keeping the status quo. Working capital reserves ensure that when potentially lucrative opportunities arise, you don’t miss out on them because there is not enough capital on hand. Similarly, when there are unexpected expenses, such as to cover materials and personnel for large or unexpected orders, your business needs capital reserves to draw from to fill those customer requests. Working capital reserves reduce the stress and financial impact of those unexpected events.
Loans Can’t Make Up the Difference
Many business owners have the mindset that if there isn’t enough capital in the coffers that they can just make up the difference by taking out a loan. Lenders like to take deep dives into financials before approving loan requests, and that means looking at how much revenue is left over after regular expenses. Additionally, if a business is approved for a loan, debt is placed on the balance sheet, which means even more revenue is going toward not only regular overhead expenses, but paying off the balance of the funding as well. This ends up making it nearly impossible to build working capital reserves.
A Solution for Building Working Capital Reserves
Building working capital reserves starts with a healthy cash flow. Businesses that issue invoices with payment schedules ranging from 30 to 90 days often have expenses during those lag periods which can place a strain on cash flow. By using accounts receivable factoring, unpaid invoices can be turned into cash within 24 hours, resulting in a supercharged cash flow. This allows businesses to get faster access to revenue and build up healthy working capital reserves so they can take on the unexpected and achieve rapid growth.
New Century Financial is a national leader in accounts receivable factoring services, giving business owners more control over their accounts receivable than ever before. Contact our offices today to start building up your capital reserves.