Accounts Receivable Factoring
The purpose of accounts receivable factoring for consumer contracts is to improve the cash flow of your business. Cash flow is simply the movement of money into your business as well as the movement of money out of your business. Cash flow is generally measured during a limited and specified period of time. Cash flow computations are employed to measure factors that provide data on your company’s status and value. For example, cash flow can be computed to illuminate the movement of cash over a specified period of time.
If you are considering exploring a new market or a new project, cash flow can be utilized relevant to the rate of return or the value of the pursuit of a new market or a new project. Such considerations as the internal rate of return as well as the net present value as they relate to the inputs in financial models, are largely determined through the use of the time of cash flows into and out of projects.
Cash flow considerations can be examined in terms of determining potential problems with your business’s liquidity. For example, being profitable does not always necessarily imply being liquid. In some situations it may be possible for a company to fail due to a shortage of cash, while at the same time remaining profitable.
The total cash flow or what could be called the net cash flow over a period of a year, half year or quarter year is equivalent to the cash balance change over this same period. If more cash becomes available the cash balance increases and the net cash flow is positive. If the cash balance decreases then of course the net cash flow will be negative.
When I speak of cash flow relevant to accounts receivable factoring, I am speaking specifically of operational cash flows, as opposed to investment cash flows or financing cash flows. That is, I am referring to cash that is received or cash that is expended as a direct result of internal business activities. When I speak of operational cash flows I am referring to cash earnings plus changes to working capital. Over the medium term if a company is to remain solvent this must be a net positive.
If cash liquidity is currently an issue, why not consider accounts receivable factoring? If you are providing a delivered product or a future service to your customers and are doing so through the implementation of a consumer contracts, it may be possible for you to sell that contract so as to enhance your cash flow. That is, instead of waiting a year or two to get paid, you may be able to sell your consumer receivable at a discount to a non-traditional funding source which specializes in purchasing these consumer contracts.