Cash Flows From Collections On Credit Sales Are Usually Reported What is Sales Financing?

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What is Sales Financing?

Running a business is a difficult process that is constantly accompanied by unexpected financial problems. Balancing is constantly needed to ensure there is enough money in the business coffers to cover salaries, rent, taxes and other regular bills and to purchase supplies and equipment.

For all companies, one of the key success factors is ensuring the quick release of funds that enable further purchases or investment decisions. If resources are tied up and not available for use, the entire business process can come to a halt.

One of the most common problems in business usually occurs when a large sale is successfully completed and the work is billed to the customer and payment is not immediate. This means that there is a lot of cash tied up in the sales books that is not available for use in other projects such as restocking. This is an all-too-common situation that can prove disastrous for many businesses – especially smaller businesses and start-ups, which are usually the least able to deal effectively with such situations due to generally low levels of liquid assets.

This has resulted in major institutions and specialist business finance organizations creating a number of business and sales finance products to fill the corporate finance gap. Today, many banks can offer business banking services such as factoring, account discounting and equity financing to allow their customers to free up many of the funds they normally have access to for working capital.

Enlisting a financial institution to collect funds related to inventory or invoices and to help with sales ledgers can improve your business in several areas. Not only does the company not have to worry about chasing debtors, but the money is quickly available for reinvestment; and the risk of bad debts arising is significantly lower, as the factoring company can pursue retained debtors. Factoring companies will often also offer additional legal debt collection services if needed.

While some businesses may see the cost of using sales finance services as a drag on profit margins, the benefits of having access to working capital funds – rather than sitting with unavailable non-business funds – can prove invaluable in enabling business growth and stability.

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