You’ve decided to factor your accounts receivable. The factor accepted your application, and now you have the cash or credit line you need to improve your business. The hard part is over – but now what? Many businesses do not know the best way to use the funding they receive from factoring services. Smart use of your new funds can mean the difference between getting all the things your business needs to thrive and still suffering from a cash flow problem. Here are five steps to take after factoring to make your additional revenue last
Assess Your Needs
You likely have more than one facet of business that could use more cash flow. You may need to make building repairs, purchase more supplies, restock your inventory, hire new talent, or catch up on payroll. You may want the funds to help your small business grow and expand into new sectors. To decide exactly where you should put the money, create a list of all the places it could potentially go. Then, rank the items on your list from most important to least important for the future of your business. Allocate the money toward the item at the top of your list first, and then let the rest of the funds – if there is any left over – trickle down to the other, less important items.
Don’t Spend Frivolously
It can be tempting to use the money for more exciting ventures, such as starting a new product line, but this is only wise if you truly don’t need the money anywhere else in your business. That said, if you do want to use the money for a fun business venture, factoring is one of the best ways to go. A bank loan often has strict stipulations for how you spend the money and may not allow using it on a new project unless you specifically get the loan for that purpose. If you have a new project you want to finance, factoring can be the ideal solution
Involve Your Team
If you’re not sure exactly how to spend the money, involve your team. Factoring should be a joint effort for you, your business partners, and your employees. Work together to decide how to spend the money. Listen carefully to the needs and concerns of your team, and try to compromise and find a solution that makes everyone happy. Working with others to decide how to spend the money can help you come up with creative solutions to help the company grow, retain your top clients, and stay scalable. Plus, your team will feel like an important part of the business if you involve them in major decisions.
Take Your Time
While invoice factoring is a viable solution for improving cash flow, it’s not a magic answer that will solve all your business problems. Factoring is a short-term solution, and should not be your only source of cash flow. Don’t take the money lightly. Take the time you need to think about where the money should go, and create a plan for how to spend your new funds. You may have to sacrifice what you’d really like to spend the money on, such as business expansion, to focus instead on client retention or hiring new talent. Be careful with your planning and don’t make a snap decision.
Look to the Future
You need to look to the future and do what’s in the best interest of your company in the long term. Factoring enables your small business to continue its operations, satisfying customer needs without hiatuses that could harm your reputation. Take advantage of this cash flow boost and put the money toward a venture that will ultimately increase your bottom line. Factoring may be a short-term solution, but it can carry your company far into the future with smart budgeting and decision-making. Think about what will help your company remain a top player in your industry, and use your invoice factoring funds wisely.