Extending credit terms to clients is a common practice. So, it's okay if you do it too. However, doing so can lead to one problem, which may grow with each passing day. Till the time your clients actually pay the amount they ought to, you would have to wait to meet the payroll expenses and replenish your inventory. Of course, if some expenses need to be dealt with on an urgent basis, you can contemplate persuading the clients to make their payments before the due date. You can also ask for partial payments. However, you must realize that asking the clients for early payments can have repercussions.
While some of the clients would agree to pay, others may take offence since they are not bound to pay before the due date. Nevertheless, the point is that it's in your best interest to not to ask the clients to pay their dues until they are supposed to, and you should rather look for other ways to get quick cash. Here, it is worth mentioning that getting quick cash be imperative in many situations such as the situations given below:
When you require paying taxes and the clients are yet to pay, you have to look for alternate funding solutions for the former. This is one of the situations when you cannot wait, at least not for a long time.
While you can certainly delay purchasing equipment, you would have to purchase it sooner or later. So, in order to ensure that your business gets to benefit from the equipment you are planning to buy, you must arrange for funds at the earliest.
In addition to these two, there can be many other situations when you see the need to have an immediate source of cash flow. In such situations, looking for funding solutions is the most sensible thing to do. Nevertheless, out of all the solutions that are commonly prevalent, you may want to focus all your energies on invoice factoring. These are the reasons that might make you do so:
When you leverage the services of a company that's engaged in factoring receivables, you can expect an early approval. In some cases, the approval may come your way within 24 hours.
If you ask your clients to pay before the due date, most of them would offer only 40-50% of the money they owe. On the other hand, factoring can be your gateway to securing as much as 85% of your invoices, and it won't even make you persuade your clients to pay up early.