Do you know that most of the start-ups succumb to cash flow pressure in just 2 years of their tenure? Do you think
there isn’t any way out? Well, a smart business owner knows that when his enterprise is changing gear and making a paradigm shift towards growth, there is a need for faster cash/ capital, which can be achieved through A/R factoring. Software companies have oftenfound themselves in a cash crunch situation despite oozing talent and ability to make it large in the marketplace. A/R factoring can definitely be a reprise to these software companies that have the potential of immense growth.
Factoring basically means purchase of all outstanding invoices of the client by applying the base charge. For example, if you have software company in Miami and are looking for factoring from PMF Bancorp, you shall be selling your invoice in return of 70 – 85% on each invoice in the form of immediate cash. When we talk about A/R Factoring in particular, there is a little bit of difference in the entire scenario. PMF Bancorp, for instance, shall provide your software company with a weekly borrowing base and this shall be charged only on those invoices which have been advanced by AR financing.
When a business that has matured over the time comes to a point of rapid growth, it is most likely possible that the expenses become more than revenue. Suppliers’ payments and payroll cannot be put on hold and customer payment for products or services are put on a second pedestal of preference. This is when the balance sheets and other financial statements start indicating negative numbers.
With such red marks, debt financing can become too intimidating and also extremely risky. Equity financiers start seeing such a company as the one under much stress. Also, they start taking it for granted that the business owner might be ready to give up more equity (ownership) for additional funds.
Such situations prove to be a nightmare for a company that is definitely on the path of growth, but is hindered due to cash constraint. A/R factoring therefore comes to the rescue because it understands the needs and potential of a small-scale or medium-sized company.
In a nutshell, A/R factoring can help a software company in Miami put the negative consequences at bay. For a rapidly growing younger business, A/R factoring proves to be an instant cash flow solution to a time of need where cash is in short supply, even if sales are bountiful.
That is why, A/R factoring is a great tool to stabile and to assist fast growing software companies keep pace with their sales.