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A beginner’s guide to cash flow financing: is it right for you?

Cash Flow Financing by Gcc Business Finance

In recent years, cash flow financing has become a popular way for businesses to capitalise on opportunities and grow their businesses. However, it is not a suitable form of financing for all businesses and appeals more to those who are in a good period of growth and who can cover all outstanding debt obligations. Here is a deeper look at cash flow financing.

What exactly is cash flow finance?

Cash flow financing is a popular method used by businesses to gain fast access to money they would otherwise have to wait for. It involves securing your financing against outstanding invoices that are yet to be paid. Instead of having to wait the typical 90 day period for your customers to pay their invoices, you can access up to 80% of this money right away.

Cash flow financing differs from other forms of non-bank lending as it incorporates a few key elements of other methods. If you decide to take on an unsecured loan, you will find you get fast access to cash, but have a very high APR to pay. Alternatively, if you take on a much more sizeable loan (such as $1 million), you will have a lower APR but it will take a long time to access the funds.

Cash flow financing is a useful intermediary as there is no need to pay high interest rates, and you can access the funds in a very quick period of time. It is important to realise that, with cash flow financing, there is no need to secure the debt against any form of collateral (such as a property).

For what reasons might you consider cash flow financing?

The main purpose behind cash flow financing is to give businesses a much-need cash flow injection to help them grow their business quickly. For example, you might want to consider cash flow financing if:

• You have an opportunity to buy out a competitor.
• A short-term opportunity has arisen and you need the money before a competitor steps in.
• You are in a rapid period of growth and need the financing in order to keep funding inventory.
• Your sales peak during key parts each year, so you could rely on it annually in order to fund that growth.
• You are an online retailer looking to expand to a brick-and-mortar environment.

How does the process work?

Securing cash flow financing is normally quite straightforward, and here is the step-by-step process you would expect.

❶ You apply to a cash flow financing facility and explain your need for funds and what your outstanding invoice balance looks like.
❷ The facility will review your application (usually very quickly) and can tell you if your situation meets their lending requirements.
❸ You will formally sign the agreement that will see you receiving anywhere up to 80% (minus fees) for the outstanding invoices owed to you.
❹ The money will be deposited into your business bank account ready for use.
❺  Once your invoices have been paid, the remaining 20% will become available to you.

If you understand the process of cash flow financing and have worked with private lenders before, you could see your business accessing those funds in under a week.

Getting started with cash flow financing

The very nature of cash flow financing means that it doesn’t suit all businesses. Typically, the firms that offer such finance require you to be able to easily cover all other debt obligations and have invoice payment terms of no longer than 90 days. If you do think that it could be an option for your company, then there are plenty of firms around to support you.

Just be sure to get a solid understanding of exactly why you need the money and how much you will require. You can then request some quotes and see if the lending terms suit your business strategy.