It’s no secret that many small businesses need to increase cash flow. 82% of small businesses fail because of poor cash flow management, making it the number one reason they go under. Having more money coming into your business than going out, not only ensures that you can meet your financial obligations – like making payroll, paying suppliers, and buying equipment or inventory – it’s necessary for taking advantage of growth opportunities. Beyond success, positive cash flow gives many small business owners peace of mind.

The problem? Options for small business funding are limited. The ones that are available can be difficult to qualify for. Take banks, for example, while lines of credit come with low interest rates, they typically require:

• Profitability, or a path to profitability, as demonstrated by three years of financial statements, prepared by a CPA or accountant
• A personal guarantee as well as a personal net worth statement. (Also common for alternative finance).
• Time: The process from application to approval could take three to six months. That’s not counting the time needed to prepare all the necessary documentation.

These requirements often don’t work for small business owners who don’t yet have a solid financial track record and need to increase cash flow sooner rather than later.

Challenges That Come With Common Methods to Increase Cash Flow

Luckily, fintechs have noticed the gap in banking services for small businesses. Some are making credit cards, a common tool used by cash-strapped small businesses, more viable for B2B companies by using technology to reduce the credit card fees. This enables buyers to pay later and suppliers to get paid now. Other alternative financing options such as B2B lending, crowdfunding, peer-to-peer lending, government grants, and short-term loans are also connecting small businesses to cash.

However, these options also come with a catch: debt. While taking on debt is considered a normal part of funding a small business, conditions in the current economic climate are complicating the situation. Many businesses now have more debt than they planned for to get through COVID-19 lockdowns, and many still are uncertain about their futures. 40% of Canadian businesses said that they could not take on any more debt. These businesses need an ongoing source of cash that’s sustainable long-term.

For many small B2B businesses, using the cash they’ve earned from completing work is the ideal way to increase cash flow – and one with huge potential considering there are $350 million dollars stuck in accounts receivable at any given time.1 It seems like an obvious solution until you examine the commonly accepted payment terms B2B buyers expect.

Many companies that sell to other companies are used to waiting 30, 60, 90 days (or even more in some cases) for their customers to pay invoices. Many small business owners have gotten excited to land a huge contract with a household name brand, only to learn that they won’t see that money for months – and yet they still need to pay their own suppliers, make payroll, and buy equipment or materials. It can seem like getting cash to grow is out of reach.

The “Hack” to Increase Accounts Receivable Cash Flow

To solve these issues, small B2B business owners are using a type of alternative financing called invoice funding to increase their cash flow. A factoring company advances the full total of an invoice in a few days rather than business owners waiting to get paid in a few months, enabling 97% faster payment.2 Then, the business owner’s customer pays the invoice total to the factoring company according to the original payment terms. The business owner gets paid quickly, the customer keeps their preferred payment terms, and the business owner isn’t tied up with the obligations of a bank loan. Suddenly, they have cash available to not only meet their expenses, but to bid on a big project, take on new customers and more contracts, and pay for marketing that will drive their growth.

However, invoice funding has perceived drawbacks. Many business owners aren’t comfortable with the idea of a factoring company contacting their customers. Some have had bad experiences in the past with factors hounding their customers for payment or otherwise damaging relationships. They also worry that their customers will think that the business is struggling and can’t serve them reliably. For others, hidden fees, not advancing the full amount of the invoice, and slow turnaround times (for a service that offers fast cash flow as a key part of its value) have left a negative impression.

Fortunately, technology has solved many of these problems. Artificial intelligence makes calculating funding offers faster and easier than ever before. Dedicated apps and accounting software integrations make it easy to request funds only for specific invoices, and add transparency by presenting rates up front before business owners accept an offer. Automated processes and dedicated account management minimize any effort required from a business owner’s customer to redirect payment.

Like any funding option for small businesses, owners have to consider whether invoice funding is right for them and their situation. It’s certainly useful for making payroll during a cash flow crunch. But it’s most effective when incorporated into a small business’ growth strategy – not only to have cash to grow but to have time to grow from not having to chase receivables.

Take the case of Bow Valley BBQ, a Canadian-owned producer of high-quality sauces and condiments. Founder Jamie Ayles recently told Intuit QuickBooks about how he was able to spend more time and money on research and development, culminating in his products being listed with major retailers. LeQuitha Simmons, CEO-owner of Nurses at Heart, has a similar story. Her nurse staffing agency serves one facility who was 6 months behind in their payments, and she was afraid to take on more contracts. Now she’s taking on all the business she wants because she’s equipped with the money and time to do so.

The big takeaway behind these stories is that for many business owners, their potential to realize their dreams is unleashed when they speed up and increase their cash flow. Invoice funding is simply one “hack” they’ve discovered to make that happen.

FundThrough is a leading player in the fintech small business working capital space. Based in Toronto, the company accelerates cash flow and enables growth. Its AI-powered invoice funding platform re-imagines invoicing so that small- and medium-sized businesses can get paid instantly and eliminate “the wait” associated with customer payment terms. To learn about FundThrough’s partnership with Intuit QuickBooks and how you can fund an invoice, click here.

1Based on FundThrough 2021 client data

2Based on FundThrough 2021 client data