Cash flow solutions are essential for maintaining day-to-day operations and can also be used during expansion or mergers. Examples include factoring, purchase order financing, lines of credit, loans, and raising prices. Payment modes such as electronic fund transfers and credit/debit cards are also used.
Cash flow is essentially the amount of cash flowing in and out of a business. Many types of cash flow solutions are used in running a business. These cash flow solutions are the lifeblood of a business and are essential for maintaining day-to-day operations. Cash flow solutions can also come into play during a company’s expansion or in an acquisition or merger. Examples of cash flow solutions that companies use include factoring, purchase order financing, lines of credit, loans, and raising the prices of their products.
Factoring involves a business that discounts and sells its receivables, or invoices, to a finance company, or factor, in exchange for upfront cash that is used to continue conducting business. There are three parties involved in factoring transactions: the seller of the accounts receivable, the factor and the debtor. Once the factor purchases the invoices, he is responsible for collecting the money owed by the debtor.
Purchase order financing occurs when a finance company purchases supplies on behalf of a company based on the company’s purchase orders. This allows the company to produce its own products without capital expenditure to pay its suppliers up front. The products are then delivered to the commercial customers by the supplier. The firm invoices its customers for the delivered goods, repays the finance company the amount of money financed to produce the goods, and collects the difference. Purchase order financing and purchase order factoring are two commonly used cash flow solutions in combination.
Lines of credit and loans are cash flow solutions that usually come from banks. A business will establish a line of credit with a bank up to a certain pre-determined amount to have working capital available on demand. There are numerous types of loans that a bank will provide based on the type of business and your particular financing needs.
Raising prices is a cash flow solution in its simplest form. Acquisition and merger financing provides the funds needed to acquire or merge with another company. Cash, stock exchange, stock purchase, or any combination of the three are the means of providing capital.
The higher a business gets paid, the more customers it can serve. That means more money the business can potentially make. Cash flow solutions such as electronic fund transfers, credit/debit card payment, and phone/fax/internet payment are some of the payment modes used by businesses as cash flow solutions.
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