Imagine that you are about a week away from your payday. Suddenly, an unplanned event occurs and you find yourself needing extra money to deal with it. It could be anything an emergency visit to the hospital, an urgent bill that was overlooked, or maybe your car breaks down. No matter what the specific need is, the fact remains that you need money to pay for it and fast.
So what should you do? You cannot wait for payday that option is not possible. Maybe you can take out a loan from your bank. It could work, right? Then again, you would probably have to wait for a week or even more for that to go through. If that is the case, then you might as well wait for your payday but this is not an option.
How about considering borrowing money from a payday loan provider instead? It is so easy to do this just go online and fill out their application form. If it is your first time to borrow money from that particular lender, you might have to send in a couple of documents through fax. This could be your latest pay stubs and bank statement. Once approved, you merely have to withdraw the cash from your bank account within a day or two.
No problems, right? Yes, as long as you pay off your payday loan within the agreed amount of time. Fast forward a week later, you realise that the money you are going to use to pay off your original payday loan was supposed to be used for a weekend trip that you have been looking forward to. So you think to yourself, I am going to pay for the loan but maybe I'll take out another one to finance the trip. Good idea?
I think not. I believe in payday loans. I believe that they have been created for a specific purpose to meet unplanned financial needs. However, I also believe that if you have a pending payday loan and you find yourself needing more cash, it may not be the best solution to take out another one.
How so? This scenario could snowball on you. First you have one payday loan. A week or so later when the first one has not been paid off fully yet you take out another one, then you have two. Some time later, you still have the other 2, you think you need more money so you take out another one. Now you have three, and so on.
The idea behind a payday loan is for it to meet emergency needs. Emergencies are not the same as regular needs. Payday loans come at a price a bit higher than regular loans. If you take out payday loans as a means of regular cash, you would end up having to pay the price and probably get caught in a cycle of debt that you would find hard to get out of. This is precisely why there are people who are so against payday loans. They think that the concept is inherently evil when, in fact, it is not. What makes it bad is the way people handle their finances and use payday loans inappropriately.
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Showing posts with label Solution. Show all posts
Showing posts with label Solution. Show all posts
Monday, September 10, 2012
Thursday, August 23, 2012
Accounts Receivable Factoring as a Solution to Increase Cash Flow
At certain times in your business cycle, whether you are a start-up business or a well-established veteran, cash flow is critical. Whether times or tough, or business is booming, cash flow challenges can cause unwanted stress and limit your growth potential.
Everyone knows the magic equation for a financial success: spend less, make more. Or, limit your expenses and increase your income. There are a hundred tips for saving money, and perhaps even more for making it, but when it comes to cash flow, you can really make an impact by turning your focus to your accounting department. There are two key principles to follow. In accounts payable: Keep your cash. In accounts receivable: Get your income as soon as possible.
Keep your cash. When it comes to limiting expenses we must turn to accounts payable. There is absolutely no need to pay any bill before it's due. Do not pay it early, do not pay it late. It's so simple, it bears repeating: Pay your bills only when they are due. When in cash crunch, keep that money in your pocket as long as you can.
Get your income as soon as possible. The second half of the equationincrease your incomemay leave you thinking, easier said than done. Some might think a quick fix for cash would be to take out a loan. Unfortunately, not everyone has this option, nor is it always good business decision. Besides, if you get down to it, this is not really your income, just someone else's money. The focus should be on the income you currently are earning and how to collect it faster. Here we turn to the accounts receivable department.
Your existing receivables are really assets that possess cash value. Rather than simply waiting to get paid, there is an option to reap immediate benefits from outstanding invoices: accounts receivable factoring, or invoice factoring. You can sell your accounts receivable (one or all of your invoices) at a discount to a third party financial institution called a factor. You then immediately collect cash on that transaction. The factor is then is responsible for collecting on the invoice. (Eventually, they will collect the full amount.)
This is different than a bank loan in a few ways.
Factoring involves three parties (seller, buyer, and factor) instead of just two. Also, the factor is not providing a loan but is actually purchasing an asset. The most important distinction is this: in order for a bank to offer a loan to your business, you must have good credit; conversely, in order for a factor to buy an asset from you, they consider the credit-worthiness of the buyer, your customer (the person who owes you money). This is critical because it means that regardless of the credit standing of your business, factoring is an option for you to obtain cash.
Accounts receivable factoring is a perfect solution for anyone unwilling or unable to take out a loan. Arguably, it's an ideal solution for any business looking for immediate cash flow. A small start-up company with not enough credit is constantly in need of cash for growth and expansion. An established firm may need a little boost to get through a tough time, or because they too are expanding.
When cash flow is critical, turn your attention to the accounting department to provide the solution. Spend less by holding on to your existing cash as long as you can, and make more with invoice factoring services. The combination of the two will result in cash flow freedom for your business.
Everyone knows the magic equation for a financial success: spend less, make more. Or, limit your expenses and increase your income. There are a hundred tips for saving money, and perhaps even more for making it, but when it comes to cash flow, you can really make an impact by turning your focus to your accounting department. There are two key principles to follow. In accounts payable: Keep your cash. In accounts receivable: Get your income as soon as possible.
Keep your cash. When it comes to limiting expenses we must turn to accounts payable. There is absolutely no need to pay any bill before it's due. Do not pay it early, do not pay it late. It's so simple, it bears repeating: Pay your bills only when they are due. When in cash crunch, keep that money in your pocket as long as you can.
Get your income as soon as possible. The second half of the equationincrease your incomemay leave you thinking, easier said than done. Some might think a quick fix for cash would be to take out a loan. Unfortunately, not everyone has this option, nor is it always good business decision. Besides, if you get down to it, this is not really your income, just someone else's money. The focus should be on the income you currently are earning and how to collect it faster. Here we turn to the accounts receivable department.
Your existing receivables are really assets that possess cash value. Rather than simply waiting to get paid, there is an option to reap immediate benefits from outstanding invoices: accounts receivable factoring, or invoice factoring. You can sell your accounts receivable (one or all of your invoices) at a discount to a third party financial institution called a factor. You then immediately collect cash on that transaction. The factor is then is responsible for collecting on the invoice. (Eventually, they will collect the full amount.)
This is different than a bank loan in a few ways.
Factoring involves three parties (seller, buyer, and factor) instead of just two. Also, the factor is not providing a loan but is actually purchasing an asset. The most important distinction is this: in order for a bank to offer a loan to your business, you must have good credit; conversely, in order for a factor to buy an asset from you, they consider the credit-worthiness of the buyer, your customer (the person who owes you money). This is critical because it means that regardless of the credit standing of your business, factoring is an option for you to obtain cash.
Accounts receivable factoring is a perfect solution for anyone unwilling or unable to take out a loan. Arguably, it's an ideal solution for any business looking for immediate cash flow. A small start-up company with not enough credit is constantly in need of cash for growth and expansion. An established firm may need a little boost to get through a tough time, or because they too are expanding.
When cash flow is critical, turn your attention to the accounting department to provide the solution. Spend less by holding on to your existing cash as long as you can, and make more with invoice factoring services. The combination of the two will result in cash flow freedom for your business.
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