Very few businesses have consistent revenue cycles. Sales may be high one month and low the next. Client contracts expire. Customers do not renew service subscriptions. Businesses of all shapes and sizes need a way to smooth out uneven revenue cycles to maintain a healthy cash flow and to grow successfully.
The Impact of Uneven Revenue Cycles
Uneven revenue cycles would never be a concern if sales constantly increased along with the rate at which unsettled customer accounts were paid. However, in the real world, this is rarely the case. Sales rise and fall and most customers adhere to the staggered payment schedules on their invoices. This means that for every sale made, a business is waiting a minimum of 30 days before seeing payments. At best, uneven revenue cycles mean big plans for growth and expansion get delayed. In more dire cases, uneven revenue cycles can mean the difference between making payroll and having to reduce the size of the internal workforce, or not making payments on loans. For new and small businesses, turbulent sales and staggered payments can flip finances upside-down. Small businesses feel more pressure from uneven revenue cycles. A ten percent drop in sales our outstanding customer invoices places a bigger strain on new and smaller organizations than large businesses which have been around for decades.
Short-Term Loans Do Not Work
Many businesses are tempted to take out short-term loans to fill in gaps in revenue. The issue with short-term loans is that the capital they provide is very finite and they place debt on the books. If sales and cash flow hit turbulence down the road, financial problems will be compounded by the debt from the previous loan, making the struggle to rightsize finances much more difficult. Everyone from accountants to business finance analysts warn against the high-risk of short-term loans, especially when no one can predict rises and falls in sales or the rate at which customers pay their invoices.
Smoothing Out Revenue Cycles
To resolve uneven revenue cycles, boost cash flow, and avoid the need for short-term loans, businesses of all sizes use accounts receivable factoring. By factoring receivables, businesses can quickly convert unpaid invoices to cash. This eliminates the dependency on staggered payment schedules, and the constant influx of capital means businesses can make payroll, cover overhead expenses, and make plans for growth.
At FSW Funding, we specialize in debt-free working capital solutions through factoring services. If you are experiencing issues with cash flow, or simply want to stay ahead of the game, contact our offices today.