Consider Your Financing Options: People & Companies

In my November article, I discussed the importance and critical need for proper financing. I highlighted the benefits while identifying the downside of not focusing on this issue or delaying taking action. In this month’s article, I’ll address various scenarios that a business owner can face, financing products that can be utilized, and their impact on the business’ operations and financial results.

The first, and all-too-common scenario, is when a customer delays payment of a valid invoice. Besides trying to hold on to their cash, other issues affect the situation. In many instances, their customers are trying to conserve their cash as well. As we all know, the delayed payment of an invoice has a direct impact on the business’ cash flow. In the absence of predictable cash flow, business decisions are modified, deferred or shelved. Conversely, having timely cash flow allows for uninterrupted business operations. To address this issue, invoice financing, commonly known as factoring, provides for the assignment of qualified invoices to the finance company in exchange for immediate access to funds. It leverages a current asset without creating debt. It can be used strategically, based on customer, specific invoice and timing.

In a manufacturing setting, equipment is a critical component of business operations. Over the years, technology, customer requirements and business growth have driven the demand for more sophisticated and expensive equipment, along with the number of units needed. This can place an undue burden on a company, depending upon its financial condition, as to acquiring the equipment needed. Frequently, a cash purchase is not feasible. As an alternative, equipment financing or leasing can allow the company to acquire the equipment over a specified time frame, while conserving cash for day-to-day operations. There are various formats as to terms and whether the company wants to ultimately own the equipment or just pay for its use. In a fast-moving technological environment, obsolescence also plays a part in deciding how the financing will be structured. Ultimately, this type of financing allows a company to keep pace with customer demand and the ability to use technology as a competitive advantage.