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Building Healthy Working Capital Reserves for Your Business

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.

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3 Things to Avoid When Requesting Business Financing

From traditional loans to alternative funding, there are more types of business financing programs available today than there were but a decade ago. But no matter which type of business financing you are considering, there are some “fine print” items and terms you should look out for, because they can end up placing a strain on your business finances in the long run.

Variable Interest Loans

Loans are a big responsibility for businesses of all sizes. Taking on debt in exchange for capital has a good amount of risk to it. Usually, the terms of business loans are amenable, and are ultimately designed to help businesses stay afloat, at the very least. Variable interest rates, however, can pose a major challenge to businesses. Traditional lenders frequently offer loans with variable interest rates, which usually go up as time goes on. This means loan payments on business financing are not static, so budgeting for monthly installments is extremely difficult. Since many businesses have multiple loans, that means the total amount being paid on each can vary, turning accounting and cash flow into huge headaches.

Balloon Payments

Balloon payments are associated with types of business financing that offer flexible payment methods, such as a merchant cash advance. Flexibility is good for small businesses owners, who might not have high sales or revenue to take on loans with regularly scheduled payments. However, if the balance owed is not paid off before the specified terms are up, businesses could be facing one large payment at the end of it all. This balloon payment is the remainder of the balance, typically with fees and interest, and can often force businesses to take out an additional loan just to cover the amount owed, which places more debt on the books and lock businesses into a debt cycle.

Prepayment Fees

While prepayment fees are not too prevalent among private and alternative lenders, they are frequently attached to more traditional forms of business financing. If your business takes out a loan, and you find yourself in a position to pay off the balance early, that would seem like a wise financial decision. After all, why drag out debt when you can repay the loan ahead of schedule and start rebuilding your business credit ratings? Unfortunately, most lenders generate revenue from the interest rates when they are spread out over months and years, so paying off the balance early threatens to reduce their bottom line. To get as much money from borrowers as possible, lenders use prepayment fees, which are penalties that are triggered when a business attempts to overpay or completely zero out the balance of a loan ahead of the terms.

At New Century Financial, we specialize in accounts receivable factoring solutions for businesses. Our factoring services are designed to get you money from your unpaid invoices faster, with no balloon payments, no hidden fees, and no term contracts. Contact our offices today to learn more.

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Rethinking the Traditional Growth Financing Model

When businesses position themselves for growth, the thought of taking out one or more loan is not far behind. For the longest time, debt-based loans have been the answer for everything from overcoming cash flow issues to expanding into new markets. However, business owners spanning all industries are rethinking the traditional growth financing model.

The Limitations of Debt-Based Financing

Growth-focused businesses want to reach their fullest potential. Loans may seem like the conventional method to attain growth capital, but they can also be very limiting. Taking on debt to achieve growth usually means businesses have to walk back a few goals in order to pay off the balance of their loans without creating a severe financial strain. Debt and impacted credit ratings add to the risk of business growth when the end result does not guarantee a proportional increase in sales to offset financial liabilities. In the end, the accumulated debt can keep businesses from hiring the workforce they need to carry out growth projects, or the inability to meet expanded overhead costs.

Achieving Growth Without Debt

Accounts receivable factoring helps businesses position themselves for growth without having to jump through hoops or take on debt via traditional loans. At its very heart, factoring is the simple process of exchanging unpaid customer invoices for cash. The simple transaction does not place any debt on the books, and it is a fast and efficient way for businesses to improve cash flow and quickly accumulate the capital necessary to act on growth opportunities. Accounts receivable factoring has come a long way, and has become a mainstay of business financing for everything from correcting minor cash flow issues to funding large projects without negatively impacting credit ratings or taking on debt. Businesses can now choose which invoices to submit for factoring, and even which parts of invoices, without any contracts, limits, or hidden fees. Accounts receivable factoring is used in every industry from niche startups to major corporations.

New Century Financial is recognized as a leader for providing comprehensive accounts receivable factoring services and tailoring solutions to meet the needs of business owners. Contact our offices today to learn how our factoring services can help your business achieve growth and long-term success.

Managing Receivables to Ensure a Healthy Cash Flow

Managing receivables is vital to the success of any business. When there is a constant stream of revenue, businesses can make payroll, meet overhead expenses, and even make plans to expand their operations. Mounting unpaid receivables can cause cash flow to flip upside down, and suddenly those liabilities on the balance sheet threaten to overshadow your revenue. Fortunately, there are a few ways to handle receivables to ensure constant revenue.

Down Payments

The idea of down payments makes a number of business owners cringe, but the practice is far from uncommon. Large orders or contracts usually require customers to pay a small part of the balance upfront before anything is delivered. In fact, managing receivables with a down payment policy ensures customers will settle the remainder of the balance on their accounts. As always, it is a good practice to be transparent about this policy before sales are made.

Late Fees

One of the biggest reasons why businesses experience cash flow issues is that customers aren’t always prompt with payments. A lack of payment could cause customer accounts to age out and then collections need to be performed, which can be a hassle for all parties involved. Instituting a policy of late fees can greatly reduce the need for collections, and get customers to pay before the aging window on the invoice closes. No one likes to pay more than they need to, and customers pay much closer attention to their own unsettled accounts when they know they’ll be charged extra if they wait too long. It is important to note that if you decide to use late fees, there must be signs in your business and a clear announcement to that effect on your invoices. Customers should know and understand your late fee policies before a transaction is finalized.

Managing Receivables with Factoring

Managing receivables with factoring services is a painless way of ensuring a healthy cash flow without having to employ draconian policies. Receivables are submitted for factoring services and are then converted to cash. Businesses can use factoring services to receive funds in a little as one business day. With such a fast turnaround, there is no need to explain how late fees work or ask for down payments. Using factoring services to keep receivables under control allows business owners to maintain a strong cash flow, make payroll, and take advantage of opportunities for growth.

New Century Financial is a leader in factoring services. Contact our offices today to learn more about factoring, and how we can help boost your company’s cash flow.