One of the biggest questions people have when they first start factoring is: “Is invoice factoring worth it?” And the simple answer is that, for most businesses, it absolutely is. Factoring accelerates cash flow like no other tool can and helps businesses avoid taking on debt. However, to move from an abstract idea of usefulness to a tangible measurement, you need to work with success metrics. Give us a few minutes, and we’ll walk you through what to track and why each area matters.
Success Metrics Demonstrate How Invoice Factoring Impacts Your Business
Success metrics, or factoring key performance indicators (KPIs), are tools you can use to measure the real impact invoice factoring has on your business. They turn broad ideas like “better cash flow” or “faster growth” into numbers you can track. By watching these business performance indicators over time, you can:
Evaluate Financial Impact: Determine whether factoring is strengthening your liquidity and overall financial health.
Guide Decision-Making: Use data to decide when and how to continue or expand your use of factoring.
Align with Long-Term Goals: Confirm that the benefits of factoring are supporting your broader objectives, such as growth, efficiency, and competitiveness.
Cash Flow Improvement Metrics
Cash flow management consistently ranks as one of the top financial challenges for small businesses. In fact, more than a quarter aren’t comfortable with their cash flow, according to a recent U.S. Chamber of Commerce Small Business Survey. Invoice factoring is designed to help with this vital concern by accelerating access to funds that would otherwise be tied up in receivables. To determine whether factoring is working for your business in this respect, you can track the cash flow improvement metrics outlined below.
Days Sales Outstanding (DSO)
DSO measures the average number of days it takes to collect payment on invoices. If your DSO drops significantly after using factoring, it’s a clear indication that factoring is working for you.
Accounts Receivable Turnover
Accounts receivable turnover shows how many times per year receivables are collected. A higher turnover ratio indicates that invoices are being converted into cash more frequently, which is a direct result of faster funding through factoring.
Cash Conversion Cycle (CCC)
Your CCC tracks how long it takes to convert investments in inventory and receivables back into cash. Factoring shortens this cycle by reducing the time receivables remain outstanding, which improves overall liquidity.
Available Working Capital
Look at the amount of capital that’s accessible for operating expenses. After factoring, many businesses report higher working capital levels that allow them to cover payroll, pay suppliers promptly, or seize growth opportunities.
Metrics such as the current ratio or quick ratio may improve as factoring increases cash on hand relative to liabilities. These ratios are often used by lenders and investors to gauge the financial health of a business.
Cost Efficiency Metrics in Factoring
Tracking factoring cost efficiency allows you to evaluate whether the benefits of factoring outweigh the costs and how factoring influences the overall financial efficiency of your business. We’ll explore some of these factoring KPIs next.
Factoring Cost as a Percentage of Revenue
This metric calculates the total fees paid to the factoring company compared to overall revenue. Monitoring it can help you determine if the expense is proportionate to the value delivered.
Savings from Early-Pay Discounts
As touched on earlier, many vendors offer discounts for early payment. For instance, you might be offered two percent off if you pay the invoice within ten days. With factoring providing immediate cash, you can take advantage of these discounts, and the savings can substantially reduce or even offset the cost of factoring.
Reduced Overhead or Loan Fees
Businesses often rely on short-term loans, lines of credit, or overdrafts when cash flow is strained. If factoring eliminates or lowers the use of these higher-cost financing options, the net cost of capital decreases.
Administrative Time Saved
Small businesses lose an average of 14 hours per week chasing invoices, according to Intuit surveys. However, when the factoring company assumes responsibility for collections, your internal costs for accounts receivable management may decline.
Business Growth Metrics
When cash flow constraints are lifted, businesses can shift into growth mode. Let’s take a look at some financial performance metrics to keep an eye on here.
Revenue Growth Rate
Tracking year-over-year or quarter-over-quarter revenue growth can show you how factoring supports your ability to take on new contracts or scale existing customer relationships.
Customer Acquisition and Retention
Reliable cash flow allows you to accept new clients without worrying about payment delays while also maintaining strong service for existing clients. A rising client count or improved customer retention rate is a sign that factoring is translating into growth and stability for your company.
Order Fulfillment Rate
The ability to accept and fulfill larger or more frequent orders reflects how factoring frees up capital. For instance, if you previously had to turn down large purchase orders due to cash shortages but can now accept them, you have a clear sign of measurable growth.
Employee Growth or Retention
With factoring stabilizing payroll and reducing cash flow stress, businesses often see stronger employee retention. Some even expand their workforce, which is another concrete indicator of growth.
Operational Efficiency Metrics
In addition to improving cash flow, factoring can also streamline operations and reduce friction in financial management.
Invoice Processing Time
Tracking how quickly invoices are submitted, approved, and funded allows you to identify how much efficiency you’ve gained through factoring. Many businesses go from waiting months for payments to accessing cash within hours or days.
Bad Debt Reduction
Most factoring companies perform credit checks on your clients before approving your invoices. This reduces your exposure to clients who may fail to pay, which cuts down on write-offs and strengthens overall collections.
It’s worth noting that you may also be able to leverage non-recourse factoring to help with this. In a non-recourse agreement, the factoring company absorbs the loss if your client doesn’t pay an invoice for reasons such as insolvency.
Collection Success Rate
When a factoring company manages collections, businesses often see higher recovery rates and more predictable inflows compared to handling collections internally.
Management Bandwidth
With predictable cash flow, business leaders can devote more time to strategic priorities rather than daily cash crunches. This is harder to quantify but often shows up in metrics such as time-to-market on new initiatives or leadership productivity.
Boost Your Success Metrics with Invoice Factoring from Charter Capital
By providing efficient service, top-notch customer care, fast advances, and competitive rates, the right factoring company can help you take your business even further. Charter Capital has been doing this for decades and has a hard-earned reputation for being one of the best factoring companies in the country. If you’d like to boost your business success through factoring, request a free rate quote.
Did you know that just two in five small businesses that apply for funding are approved for all the funding they seek, according to the latest Small Business Credit Survey? Nearly a quarter are completely denied, and the rest land somewhere in between; in that awkward place where they get some of the cash requested, but not enough to do what they actually need to do. While this may seem grim, there are still lots of often-overlooked business funding tips and tricks. In this guide, we’ll walk you through what you can do before applying, while applying, and after funding to help ensure you get the most capital possible and maximize its use.
Naturally, your credit score is a major deciding factor if you’re seeking traditional funding. Unlike personal credit scores that are managed by Equifax, Experian, and TransUnion, which range from around 300 to over 800, your business credit score can be anywhere from 0 to 100. You’ll still have different scores based on the credit bureau, but in this case, it will be Equifax, Experian, and Dun & Bradstreet (D&B).
Check Your Profiles: Check with each bureau to confirm the info they have about you is accurate and follow up on a regular basis to ensure it stays that way.
Build Where You Can: Establish trade lines with your suppliers and leverage credit in small amounts that you can pay off quickly to begin building your score.
Minimize Debt: Avoid taking on debt and reduce debt ratios whenever possible, so funding companies see you’re managing finances wisely and can afford payments.
Organize Your Financial Documents
Have clean, up-to-date records. Lenders and investors want to see tax returns, profit and loss statements, and cash flow forecasts.
Know Your Numbers
Build business financial literacy skills. This will help you improve your numbers and boost lender confidence. Explore key areas like tax planning, bookkeeping, budgeting, forecasting, and financial statement analysis.
Diversify Revenue Streams
Businesses with multiple revenue streams are typically more stable because they’re not reliant on a single area. If customer demand, supply chains, or other areas shift, you have something else to fall back on. Because of this, the perceived risk of lending to your business is often reduced, and you can often secure larger funding amounts.
Build Strong Banking Relationships Before Seeking Business Loans
Once you have a strong foundation, explore various funding options to find the right fit and start applying. The following tips will help improve your chances of success.
Apply For Small Business Funding Before You Need Working Capital
Explore working capital options before you’re in a bind and apply before you need funding. This serves two major purposes. First, your business will look better on paper when it’s financially strong, so you’re more likely to get approved and qualify for the level of funding you need. Secondly, this approach allows you breathing room to make informed choices. If you wait until you’re unsure if you can cover payroll or order supplies, you’re more likely to accept whatever terms you’re offered, even if they’re not great and won’t benefit your business in the long run.
An option like small business invoice factoring is often ideal in these situations, as you can get approved and ensure funding is available ahead of time, and then not use it or pay any fees unless you actually factor an invoice. This can help you manage costs better and speed up the funding timeline if you face an unexpected expense or hit a bump in the road later.
Have a Professional Business Plan
A well-written plan with market analysis, financial projections, and an outline of how you plan to use the funds speaks to your professionalism and demonstrates that any money invested in your company will be well spent, which boosts the confidence of lenders and investors. Alternative funding companies also appreciate seeing business plans.
Explore Alternative Funding Options
By default, most businesses turn to bank loans for funding. However, approval rates are even lower for traditional business loans than other options, with two-thirds of applicants receiving denials, according to the Small Business Credit Survey.
Moreover, there are some nuances between “good debt vs. bad debt.” For instance, if taking on debt allows you to increase the net worth of your business or has future value, it often fits in the “good debt” category. But if it doesn’t add to your net worth or could potentially leave you with nothing to show for your payments, it’s likely in the “bad debt” category. When these situations apply, consider alternative financing.
That might mean using venture capital for startup financing or tapping into merchant cash advances (MCAs). However, it’s important to be mindful of how these choices impact your equity and profitability, as equity dilution may hinder your ability to make decisions, and MCAs tend to come with high costs.
Invoice factoring also fits into the alternative funding category, but it’s different because it’s not a loan, so there’s no debt to pay off, and it doesn’t reduce your equity. It’s an advance on your unpaid B2B invoices.
Keep Personal Finances in Good Shape
Many lenders still look at personal credit scores. Especially for small businesses, your financial habits impact perceived risk.
Maximizing Business Capital Post-Funding
At this stage, you’ve strengthened your financial position, applied for funding, and received at least some of the money you needed. Here’s how to ensure that cash goes as far as possible.
Use Funds Strategically
It can be difficult to stay focused on your business goals as competing priorities emerge. However, it’s essential to use your funds for their intended purpose. It may help to use a project management system like Wrike or Asana to break your big-picture goals into smaller milestones, so you always have your goals at the forefront of your mind and stay on track.
Burnout and decision fatigue can also lead to unnecessary spending. Delegate tasks whenever possible to ensure you have the bandwidth to oversee your business activities strategically.
Some loans have reporting or financial performance requirements. Keep up with them to avoid defaults or higher rates.
Track ROI on Every Dollar
Measure the effectiveness of your funding use. This can help you justify the need for funding later and adjust your strategy in real time.
Maintain Communication with Lenders and Investors
Transparent updates build trust, which makes renewals, extensions, and future fundraising much easier.
Maximize Your Business Funding with Invoice Factoring
Invoice factoring is unique, so it helps businesses in lots of different ways. For instance, it’s accessible, even to businesses that don’t have strong credit or are just starting out. This means you can use it as your core source of funding even if other avenues are closed.
While you’re using it, it can help you maintain healthy cash flow and engage in activities that boost your credit, which may make it easier to qualify for traditional bank loans and other credit-dependent funding options down the road.
Many businesses also leverage it to fill gaps left by other sources. For instance, if you need $100,000 to purchase equipment but only get a $50,000 loan, you can factor $50,000 worth of invoices to reach the total sum needed and start generating more revenue faster.
Most businesses hit a sales plateau at some point. Maybe you’re seeing a flatline in growth, or even a downward trend. This often happens because you’ve reached a ceiling on what you can accomplish with your existing tactics and tools, but it doesn’t mean you’re stuck at this point forever. In this guide, you’ll learn how to increase business sales strategically, so you can move forward without overhauling all your systems at once.
Evaluate What’s Not Working First
When sales stall, many business leaders jump right into implementing new things, such as running ads, hiring a new sales rep, or adjusting prices. However, jumping into new sales tactics without understanding what’s going wrong is like treating a cough without knowing it’s caused by allergies, the flu, or something more serious. Sure, you might be able to mask the symptom temporarily, but if you don’t know why that symptom is occurring, you can’t fix it. Moreover, the underlying cause may continue to cause damage that will become even harder to resolve over time because you’re silencing the alarm bells.
Because of this, you should walk through your existing processes first and try to find gaps in sales processes and marketing strategies.
Check the Customer Journey Step-by-Step
Map the full experience from the first moment someone hears about your business to the point of purchase to identify where people are exiting the journey.
Awareness: Are enough of the right people finding out about you? If you’re reaching lots of people, but the people you connect with are not your ideal customers, it’s time to rethink how you’re targeting.
Interest: Once they land on your website or hear your pitch, are they sticking around? Look for signs like the amount of time they spend on your site, the number of pages they visit, the number of times they visit, and engagement with emails.
Decision: Do they see enough value in your offer to take the next step? If not, then you may need to play up how your solution benefits them and explore ways to demonstrate the value you bring.
Action: Are you making the buying process clear and easy, and do they trust you enough to guide them through the process? Find out if happy customers are sharing their stories or if the loudest voices online are dissatisfied customers. Examine friction points in the final steps that you might be able to address or eliminate.
Assess Your Offers and Pricing
Even if you’re offering your products or services at a fair price, your approach or messaging may not be resonating with prospective customers.
Offer Clarity: Is it clear what customers receive and how it benefits them? Try running your messaging past people outside your immediate team to see if they feel it’s compelling.
Pricing Fit: First, consider your messaging and the price point. If you’re a value-based brand, messaging and pricing should match. If you’re offering high-end products or services, charging too little can actually make people question the quality. You might also find that certain audiences respond differently to the pricing structure. For instance, some may appreciate a discount, while others want a free trial or bonus perks. Some may want to stick with a monthly plan that gives them more flexibility, while others may prefer ongoing subscriptions or upfront payment to secure a discount.
Talk to Your Sales Team
Take a look at how sales conversations are handled.
Close Rate: The average close rate is around 20 percent, according to HubSpot. There are variances by industry. For instance, finance comes in at 19 percent, and software comes in at 22 percent. If you aren’t meeting industry benchmarks, try to find out why.
Sales Message Consistency: Is the messaging that your sales team leverages consistent with your marketing? If not, prospective customers are likely picking up on the disconnect and losing trust.
Objection Handling: Almost every prospect will push back in some way. Some will balk at pricing, while others may be unsure of the fit or commitment. If you’re not breezing through objections, develop a list of the most common objections and how to overcome them.
Review Your Lead Quality and Volume
Sometimes, business leaders point the finger at sales, as if reps aren’t doing enough with the leads they have. However, the issue can lie with the leads themselves.
Lead Quality Issues: Make sure your sales team logs what happens with leads in your customer relationship management (CRM) software. Watch for trends in the comments leads make, such as pricing pushback or claims that your offerings aren’t a good fit. These can be signs that you need to adjust who you’re targeting or your messaging.
Lead Volume Issues: Are you getting enough strong leads? If not, then you may want to take a look at your top-performing initiatives and put more of your budget into them while letting go of underperforming initiatives.
Additional Tips to Increase Business Sales
Once you’ve examined your existing processes for issues and have addressed these areas, you can begin applying new strategies to increase business sales.
Leverage the Right Tools for Informing and Improving Sales Strategy
The right online tools can help you see what’s working, where leads drop off, and how buyers behave before they convert. Let’s take a look at a few examples.
CRMs: We touched on customer relationship management software earlier. A good system allows you to monitor lead quality, deal progress, and close rates over time. Some popular choices are Salesforce, HubSpot, and Zoho CRM.
Analytics: Track how people find your site and what actions they take once they arrive. The gold standard here is Google Analytics, which is free, but you can also explore alternatives like Matomo, Plausible, and Fathom.
Heatmaps: Use heatmaps and session recordings to see which portions of your pages people engage with and friction points. One of the more budget-friendly options is Zoho PageSense, which is free if you already have a Zoho One subscription. You can also use Microsoft Clarity for free. However, options like Hotjar may be more ideal if you exceed what the other platforms can do for you.
Strengthen Customer Retention
Did you know that the probability of selling to an existing customer is 60 to 70 percent, while your odds of selling to a new prospect are just five to 20 percent, per Invesp? If you’re trying to boost sales, focus on customer retention and ensure your existing clients are happy.
Leverage Upselling and Cross-Selling
One of the fastest ways to boost sales is by increasing the value of each transaction.
Upselling: Encourage customers to upgrade or buy a more premium version of what they already want.
Cross-Selling: Offer complementary products or services that add value to their original purchase.
Improve Lead Generation
When sales are low, you may not have enough qualified leads coming in. Focus on attracting people who actually need what you offer and are ready to take action.
Lead Magnets: Offer useful resources like guides or checklists in exchange for contact information.
Landing Pages: Create dedicated pages that match ad messages and drive conversions.
Referral Programs: Create a customer referral program that encourages happy clients to send others your way, and explore the idea of creating a referral partner program that rewards non-customers for helping your business grow.
Experiment with New Marketing Strategies
If your current channels are saturated, underperforming, or have plateaued, it may be time to branch out. Perform short tests with different social networks, partners, videos, and ad strategies.
Bring in a Pro When Sales Growth Stalls
If you’ve gone through these steps and didn’t get results or don’t have the time to devote to them, consider bringing in a pro. An experienced consultant can help troubleshoot your existing strategies and identify the best path forward. While there is an upfront expense here, a good consultant will deliver a strong return on investment.
Keep Your Business Moving Forward While Boosting Sales with Factoring
It takes time to troubleshoot and implement strategies that increase business sales. If your business is struggling to cover payroll and other expenses while you’re actively addressing your sales concerns, invoice factoring can help. Instead of taking out a loan that leaves you with ongoing payments and debt, factoring accelerates payment on your B2B invoices, so you get cash right away and don’t add debt to your balance sheet. To learn more or get started, request a complimentary rate quote.
When people hear the terms “surplus equipment” or “unused equipment,” they often think of large, obvious assets, such as trucks parked for weeks or months on end, cranes that are no longer in rotation, or outdated production lines that are gathering dust. But surplus equipment shows up in more subtle ways across different industries. In this guide, we’ll walk you through how to identify if you have an issue, why it’s essential to take action if you do, and tips for managing surplus equipment to help keep your company financially strong.
What Surplus Equipment Really Looks Like
Surplus equipment isn’t limited to idle or broken pieces. Sometimes it’s items that are underperforming, misallocated, or no longer aligned with your current operations. Knowing how to spot it in your organization is the first step toward rectifying the situation.
Vehicles without Regular Routes or Assignments
These can include trucks, cargo vans, trailers, or service vehicles that remain road-ready but spend more time parked than deployed.
Tools or Machinery That Rarely Leave Storage
These may still be functional, but if you cannot recall the last time they were used, they’re likely not contributing to your current operations.
Technology That is No Longer Actively Assigned
Devices like laptops, tablets, or phones often pile up after turnover or upgrades, especially when no one is specifically assigned the job of managing them.
Production Equipment Tied to Past Work
This includes items such as molds, specialized tooling, or machines that were built around processes you no longer use.
Marketing or Presentation Gear That Stays Packed Up
Displays, banners, lighting kits, and other portable setups often go untouched between events or after strategy pivots.
Extra Equipment from a Shift in Headcount or Space
When your team size or footprint changes, it’s common for leftover equipment to sit unused without being formally retired.
How Surplus Equipment Affects Your Financial Health
Keeping surplus equipment isn’t always the wrong move, but it does have financial tradeoffs. If you’re not tracking those, you might be carrying unnecessary costs or missing better uses of your capital.
Tied-Up Capital
Equipment often represents a significant upfront investment. If it’s not producing revenue, you are losing out on returns that could be used elsewhere.
Hidden Operating Costs
Costs to hold equipment don’t stop just because you’re not using it. You may be paying for things like storage, maintenance, insurance, compliance, or even IT support on an ongoing basis. This can drain your cash flow and make it harder to cover essential expenses. Considering that three out of five small businesses say they struggle with cash flow challenges, and three in ten say they’ve been unable to cover crucial expenses like payroll and vendor payments, per Intuit surveys, it’s a major concern.
Balance Sheet Bloat
Surplus equipment still appears on your balance sheet, even if it’s not helping your business earn money. That can make your return on assets look low, which is a red flag for lenders and investors who want to see that you’re using resources effectively.
Depreciation without Utility
Equipment continues to lose value when idle. If it depreciates to the point where resale is no longer viable, you lose the opportunity to recover some or all of the cost.
Lost Opportunity
Most importantly, every dollar tied up in underused equipment is a dollar not being invested in growth. More than half of all small businesses have lost $10,000 or more because cash flow prevented them from accepting a project or sale, Intuit surveys show.
Quick Guide to Managing Surplus Equipment
At this stage, you likely have an idea of which unused assets are holding your business back and how they’re impacting you financially. It’s time to take action.
Step 1: Take Inventory of What You Actually Have
The first step of surplus asset management is listing all equipment that is no longer in regular use. This includes machinery, vehicles, tools, and technology. The objective here is to create visibility and identify items that may no longer support current operations, so a simple spreadsheet is often sufficient. Many businesses turn this and later steps into a collaborative effort and build a spreadsheet in Google Sheets or similar, so that everyone is working with the same document in real time.
Step 2: Assess the Value of Your Assets
Once you have a complete list, assess each item for both market value and usefulness within the business. Consider factors such as condition, age, and how well it aligns with the current operations. Some assets may be worth keeping if they can be reassigned, serve as backups, or support new initiatives.
Step 3: Explore All Your Options
Determine the best way to offload items with no remaining internal use. A few popular methods are covered below.
Repurposing Equipment: Equipment repurposing may be an option if you can use the item for a different internal function, training, spare parts, or overflow capacity.
Equipment Resale Strategies: Selling unused assets allows you to recover some or all of the value by listing the item through equipment marketplaces, auction platforms, or industry brokers. You can also work with specialized equipment liquidation companies to move things quickly.
Donating Items: Provide useful assets to nonprofits, schools, or vocational programs, and consult your accountant to document any potential tax benefit. Recycling or Disposal: For outdated or unusable equipment, pursue responsible recycling or certified disposal services to manage waste appropriately.
Step 4: Address Working Capital and Cash Flow in the Interim
If you’re experiencing symptoms like cash flow issues or a lack of working capital while working through the process, identify ways to smooth things out. For instance, if you issue B2B invoices, invoice factoring can accelerate those payments. Rather than waiting for your client to pay, you sell your invoices to a factoring company at a slight discount and receive most of the value right away. This method provides upfront cash to cover expenses and doesn’t create debt.
Step 5: Document What Leaves Your Business
Accurate documentation paves the way for comprehensive financial reporting and regulatory compliance. Keep detailed records of each asset’s final status, including resale receipts, donation letters, internal transfer notes, or disposal confirmations.
The Rise of Surplus Buying: Who’s Buying and Why It Matters
Surplus buying isn’t just an opportunity for buyers—it’s also a strategic solution for organizations managing their own surplus. When businesses actively participate in the secondary equipment market, whether as sellers or buyers, they support a circular economy that reduces costs, minimizes waste, and extends the useful life of assets.
For sellers, surplus buyers are essential. Startups, nonprofits, and local businesses often seek cost-effective alternatives to brand-new equipment—purchasing used office furniture, packaging tools, commercial kitchen assets, and more. Their demand helps organizations offload unused equipment faster and at better prices, transforming idle assets into working capital.
By listing surplus assets on platforms like SAM Auctions or SAM Marketplace, companies tap into this growing buyer pool. These platforms connect sellers with qualified buyers, accelerating sales and increasing recovery value. With the help of surplus management software, businesses can also streamline the process, track inventory, and optimize their overall asset management strategy.
In short, buying is a strategy because it fuels the marketplace sellers rely on—making surplus management faster, more sustainable, and financially effective.
The Role of Consignment in Smarter Surplus Liquidation
Consignment is an increasingly valuable part of the surplus management process for organizations with surplus property, such as furniture, fixtures, and equipment (FF&E), or processing equipment. Instead of managing a direct sale, business owners can work with third-party partners to sell assets on their behalf, often generating better returns with less internal effort.
This method is ideal for businesses aiming to manage their surplus more efficiently while supporting sustainability efforts. It helps reduce holding costs, frees up increased storage, and allows for responsible and sustainable handling of surplus materials. For those in procurement or operating a formal surplus property program, consignment can extend the lifecycle of assets while promoting sustainable surplus strategies.
Pairing consignment with surplus management software or a broader asset management program improves tracking and reporting, especially when managing diverse resources like refrigeration and FF&E. Consignment helps streamline how you manage, transfer, or retire surplus equipment.
This approach aligns with broader goals around implementing sustainability and ensuring the best use of resources, all while optimizing outcomes in equipment management and long-term equipment sales.
Strengthening Business Operations Through Surplus Management
Surplus management is more than just a cleanup exercise. It’s a proactive strategy that enhances operational efficiency and supports smarter business decisions. When businesses build surplus oversight into daily operations, they gain:
Operational Clarity: A real-time understanding of available assets enables faster deployment, prevents workflow disruptions, and reduces downtime.
Procurement Efficiency: By tracking asset usage across departments or locations, businesses can avoid unnecessary purchases and ensure equipment is assigned where it delivers the most value.
Strategic Flexibility: With fewer resources tied up in unused equipment, leadership can respond more quickly to market changes, scale initiatives, or reallocate space and staff.
By shifting surplus management from a reactive task to a routine operational discipline, businesses strengthen their ability to adapt, grow, and optimize resources across all functions.
Making the Right Call: Choosing the Best Path for Surplus Equipment
With multiple options available—resale, redeployment, donation, recycling, or consignment—choosing the best course of action for surplus equipment comes down to balancing value recovery, internal needs, and sustainability goals. To make the most of each decision, businesses should:
Evaluate Cost vs. Recovery: Consider whether the asset’s market value justifies resale efforts or if donation or recycling offers a better return in goodwill or efficiency.
Assess Internal Use Potential: Before offloading, ask whether the asset can be repurposed, reassigned, or held as a backup. For multi-site operations, internal redeployment may save future costs.
Prioritize Speed vs. Return: If cash flow is tight or storage is limited, faster options like consignment or liquidation may be preferable to longer resale cycles.
Align with Sustainability Goals: Recycling, donation, or resale to mission-aligned buyers can reduce environmental impact and support CSR initiatives.
By applying a consistent framework to surplus equipment decisions, businesses ensure each asset is managed with maximum impact—financially, operationally, and ethically.
Why Businesses Are Modernizing Equipment Transactions
Traditional surplus processes can be slow and fragmented. More organizations are turning to digital platforms and surplus management software to:
Increase Visibility of Equipment Inventory Across Locations: Ensure teams have real-time access to asset data to improve coordination and avoid redundant purchases.
Accelerate Transactions by Connecting Directly with Qualified Buyers: Use digital platforms to shorten sales cycles and improve cash recovery speed.
Maximize Recovery Value Through Competitive Bidding Environments: Leverage auctions and marketplaces to drive up final sale prices and reach a wider buyer base.
Streamlined digital processes free up working capital sooner, allowing businesses to reinvest in new projects, equipment, or technology with fewer delays.
Embedding Surplus Management Into Financial Planning
Rather than treating surplus equipment clean-up as a one-time task, you can incorporate surplus management into your broader financial strategy. This shift enables:
Proactive Budgeting: Plan for asset reviews and potential liquidations as part of your annual or quarterly budgeting to ensure smoother cash flow and fewer surprises.
Lifecycle Forecasting: Align your equipment purchases, maintenance, and retirements with long-term financial goals to improve capital planning and avoid overextension.
Operational Agility: When you integrate surplus management into your financial reviews, you can quickly reallocate funds from underused assets to meet shifting priorities or seize growth opportunities.
Stronger Governance: Treat your equipment as a strategic asset to improve accountability, simplify audits, and strengthen decision-making.
Embedding surplus management into your planning cycles ensures it’s not just about cutting losses—it’s about optimizing how you use capital and aligning your assets with business strategy.
Long-Term Solutions to Prevent Equipment Overstock
To stay efficient long-term, you’ll need to develop systems and habits that prevent unnecessary accumulation.
Implement an Equipment Tracking System
Whether you choose spreadsheets or asset-tracking software, the goal is the same: maintain a clear record of what you own, where it is, and how often it gets used. This will help prevent duplicate purchases and help you make smarter use of existing equipment.
Build Regular Equipment Reviews into Operations
Establish a cadence for reviewing equipment use, such as quarterly, semiannually, or as part of your budgeting and planning cycles. This will help you catch unused assets early and reinforce a habit of evaluating need before acquiring more.
Apply a Lean Approach to New Equipment Purchases
Before bringing in new equipment, ask whether the task can be handled with existing resources. Leasing, renting, or repurposing may be more cost-effective. Make this a standard part of your decision-making process to keep your business more flexible and reduce long-term clutter.
Tie Equipment Purchases to Expected Return
Treat equipment as a strategic investment. Set clear expectations for how it will contribute to revenue, efficiency, or capacity. If the value is unclear or the asset is not likely to be fully utilized, it may not be the right time to buy.
Get the Capital You Need While Managing Surplus Equipment
Depending on the strategy you use to offload your unused equipment and how selective you are about ensuring you receive top dollar for it, it can take months or even years to have it fully moved. During this time, cash flow management can become especially challenging. Invoice factoring is an ideal solution for many companies because it doesn’t create debt, and you stay in control of when you factor and which invoices you leverage. This allows you to factor selectively to fill gaps as needed and hit the brakes as soon as your equipment sells. If you’d like to explore the fit for your business, request a complimentary rate quote.
Organizations that consistently develop negotiation skills improve their financial outcomes by roughly 30 percent compared to their peers, according to McKinsey research. It makes perfect sense, considering that negotiation touches nearly every part of running a business, from finalizing supplier agreements to setting the terms of new client contracts and discussing payment schedules.
In this guide, we’ll explore business negotiation tips and strategies, so you can start closing better business deals right away.
Understand the Value You Bring
Before you step into any negotiation, you need a clear sense of what your business offers and why it matters. If you walk into a negotiation unprepared in this regard, it’s very easy to over-concede or agree to terms that limit your long-term growth.
Every business has unique strengths. For instance, yours might be speed to market, specialized expertise, or a proven track record of success. Identifying these strengths allows you to frame your offers with confidence and avoid unnecessary compromises.
Key Areas to Define Before Negotiating
Core Differentiators: Outline what sets your business apart from competitors and how that benefits the other party.
Proof Points: Be ready to share examples of past results, client success stories, or industry recognition that support your position.
Bottom-Line Impact: Understand how your solution saves money, drives revenue, or improves operational efficiency for the other party.
Non-Monetary Value: Recognize additional value you bring, such as faster turnaround times, better customer support, or lower risk.
Prepare Like a Pro
Strong negotiations start long before the first conversation takes place. The more prepared you are, the more control you have over the direction and outcome of the deal.
Effective negotiators build a foundation by understanding their own position, researching the other party’s needs, and developing a flexible strategy that adapts to new information during the session.
Steps to Strengthen Your Preparation
Know Your Numbers: Have a clear understanding of your costs, margins, and acceptable price points before discussions begin.
Research the Other Party: Identify their business pressures, goals, and decision-making priorities if possible.
Outline Ideal and Acceptable Outcomes: Define the best-case scenario, the outcomes you are willing to accept, and the limits you will not cross.
Create a Concession Plan: Rank concessions by importance and determine what you are willing to offer in exchange for better terms elsewhere.
Once you’re fully prepared and understand the value you bring, the next step is to follow a structured negotiation process—one that guides your conversations from start to finish and helps ensure consistent, mutually beneficial outcomes.
Mastering the Stages of the Negotiation Process
Every successful negotiation unfolds through a series of structured steps. Understanding these stages gives business negotiators a framework to apply effective negotiation strategies with more clarity and purpose. This process helps avoid common pitfalls, align expectations, and create value for all parties involved.
Opening: Begin with clear, concise communication. Establish rapport and trust by listening to the counterpart’s goals and presenting your position in a way that invites dialogue.
Bargaining: This is the negotiation’s core, where give and take happen. Effective negotiation techniques include testing anchors, making concessions strategically, and offering creative solutions that lead to win-win outcomes.
Closing: Confirm the terms, clarify expectations, and document agreements. Emotional intelligence is essential to ensure that both parties leave the bargaining table satisfied with the result.
Follow-Up: Solidify the agreement through communication and accountability. Following up builds credibility and supports long-term business relationships, whether within a company or between buyers and sellers.
By focusing on these essential negotiation stages, even those new to business or taking a negotiation course can develop the business negotiation skills needed to reach mutually beneficial agreements and become better negotiators over time.
Communicate Clearly and Confidently
Clear communication sets the tone for the entire negotiation. When you explain your position simply and directly, you reduce misunderstandings and build trust early in the process.
Confidence grows from your preparation and clarity. The ability to explain your position calmly, listen carefully to the other party’s needs, and respond thoughtfully creates a stronger presence across the table.
Ways to Strengthen Your Negotiation Communication
Use Plain Language: Focus on clear, outcome-driven explanations instead of technical jargon or layered arguments.
Frame Proposals Around Value: Show how your offer solves challenges or advances goals for the other party.
Practice Strategic Pauses: Allow space after important points to give the other party time to reflect and respond.
Manage Your Body Language: Maintain steady eye contact, an open posture, and controlled movements to project calm authority.
Listen More Than You Talk
Listening is one of the most powerful negotiation tactics. When you focus wholly on what the other party is saying, you gain insights that can help you shape better offers, uncover hidden outcomes, and build stronger agreements.
A good rule of thumb is to spend 70 percent of your time listening rather than speaking, Thompson Reuters reports. This approach will give you a deeper understanding of what matters to the other side and create more opportunities to find common ground.
Ways to Improve Your Listening Skills
Ask Open-Ended Questions: Encourage the other party to share details about their needs, priorities, and concerns.
Confirm Understanding: Summarize or restate key points to ensure both sides are aligned before moving forward.
Stay Fully Present: Focus on the conversation without planning your next response while the other party is speaking.
Pay Attention to Nonverbal Cues: Keep an ear out for the person’s tone, pacing, and body language, as these often reveal more than words alone.
Focus on Building Long-Term Relationships
Negotiation works best when it creates lasting value. A strong agreement should strengthen the relationship between both sides, laying the groundwork for future business and opportunities.
When both parties feel respected and see clear benefits, partnerships tend to last longer and grow stronger. Trust earned during negotiations often leads to more referrals, faster agreements down the road, and a better reputation across your industry.
Ways to Prioritize Relationship Building
Aim for Mutual Wins: Structure agreements around shared success and creating results that matter to both sides.
Stay Professional Under Pressure: Keep communication steady and respectful, even during difficult conversations.
Follow Up After Closing: Reinforce the relationship by checking in, addressing any early concerns, and staying connected.
Practice, Practice, Practice
Negotiation is a learned skill. Like any skill, your negotiation strategies will improve with consistent practice, thoughtful reflection, and a willingness to adjust based on experience.
The more you engage in structured practice, the easier it becomes to read the room, spot opportunities, and respond strategically during real negotiations. Regular exercise also builds both confidence and flexibility, two qualities that define strong negotiators.
Ways to Build Your Negotiation Skills Over Time
Roleplay Different Scenarios: Practice common negotiation situations with your team, rotating roles to build perspective and agility.
Seek Feedback After Negotiations: Review what worked, what could have gone better, and where your communication or strategy could be stronger.
Study Successful Negotiators: Learn from experienced negotiators through books, interviews, or workshops to add new techniques to your approach.
Apply Techniques in Everyday Conversations: Look for opportunities to negotiate small agreements, such as project deadlines or contract terms, to strengthen your skills naturally.
Eliminate Financial Friction from Negotiations with Invoice Factoring
Payment terms are one of the most critical concerns in business deals. If you’re the one receiving funds, you want payment right away. Meanwhile, the other party is likely going to push for longer terms. With factoring, you can use longer payment terms as a concession to help secure the deal you want, but without actually having to wait for payment.
Instead, you’ll sell your invoice to a factoring company like Charter Capital at a slight discount. Your business receives most of the funds upfront. Your factoring company also collects for you, which saves you the time and trouble of chasing payments. You receive the remaining balance when your client pays.
One of the many things that makes factoring unique is that you don’t have to factor all your invoices or even leverage it when you sign up. For instance, you can become established with a factoring company, and then only choose to factor certain invoices for clients who have negotiated longer payment terms with you.
Be Prepared with Help from Charter Capital
If you’d like to explore how factoring can be instrumental in improving business deals or begin leveraging it as part of your negotiation strategies, request a complimentary rate quote.
You probably didn’t mean to overstock. Maybe you were preparing for a surge in demand, a customer delayed a large order, or your procurement team was trying to lock in better pricing. Surpluses have a way of sneaking up on businesses and holding working capital hostage. But, that doesn’t mean you’re going to be stuck in a rut forever. In this guide, we’ll walk you through proven excess inventory management strategies and how to ensure your business stays liquid while you smooth things out.
Subtle Signs Your Business Has Too Much Inventory
Sometimes it’s really obvious that you’re holding too much inventory. For instance, if your warehouse or storage space is bursting at the seams, you probably identified the problem quickly. However, other times, businesses identify that they have a surplus based on the symptoms. Let’s take a quick look at a few examples.
Inventory is Not Moving in Line with Project Timelines
Delays, cancellations, or shifting priorities can leave you with stock that is no longer aligned with your production schedule.
Customer or Project Delays: You are holding raw materials or completed units beyond their expected use date because timelines have changed.
Idle Stock from Cancelled Orders: Inventory originally earmarked for a specific contract is now sitting unused.
Cash Flow Feels Tight, Even Though Receivables Are Strong
When capital is trapped in unsold or unused materials, it limits your ability to operate, even if your customers are paying on time.
Increased Dependence on Outside Funding: You are leveraging loans or lines of credit more often to cover normal operating costs.
Strained Vendor Relationships: Payment delays are occurring because funds are tied up in inventory rather than being available as cash.
Materials Are Aging or Degrading
Certain materials have shelf lives, while others can lose relevance if customer requirements or industry standards shift.
Shelf Life Concerns: Chemicals, fluids, or temperature-sensitive supplies are at risk of becoming unusable.
Obsolescence Risks: Materials that no longer meet specifications may need to be sold at a loss or written off entirely.
Production Has Slowed Due to Inventory Imbalance
Having inventory on hand does not always mean you have the right inventory.
Mismatch Between Inventory and Demand: Your team is waiting on certain components, while others pile up unused.
Increased Downtime: Jobs are stalled, not because of a lack of materials overall, but because of gaps in what is actually needed.
How Excess Inventory Hurts Your Business
At first, it might not feel like a crisis. A full warehouse can even look like a sign of health. However, when inventory levels go unchecked, the effects start showing up in places you may not immediately connect back to overstock.
Restricted Agility During Shifts in Demand
In industries driven by contracts, market cycles, or project-based work, speed matters. If too much capital is tied up in the wrong materials, you lose the ability to respond to new opportunities.
Slow Reaction to New Orders: You cannot take on new business because you need to clear out materials that no longer fit or because you cannot afford to start more work while your capital is tied up in excess inventory.
Delayed Equipment Servicing or Maintenance: If your storage facilities are overfilled, other parts of your operation often get pushed aside.
Operational Efficiency Drops
Extra inventory means more warehouse management, more movement, more checking, more tracking, and more room for mistakes. Even if your storage is organized, the overhead of managing unused stock adds friction to every task.
Longer Fulfillment and Prep Times: Crews spend more time locating what they need or stepping around what they don’t.
Workarounds Become the Norm: Temporary shelving, off-site storage, or shifting production space just to house inventory can drag down your entire workflow.
Decision-Making Becomes Reactive
Rather than leading with demand or project planning, your business starts bending around the inventory problem. It’s a dangerous shift because it means the excess is now dictating your strategy.
Purchasing Power Gets Thrown Off: You stop buying what you need because the optics of full shelves make it harder to justify new orders, even if they’re more aligned with your current work.
Sales and Production Get Misaligned: Teams may feel pressure to move product or use materials just because they’re already in stock, even if they’re not ideal for the task at hand.
Access to Credit and External Funding Reduces
Lenders care how quickly your business converts work into cash, and inventory does not count as working capital.
Lower Perceived Liquidity: Even if your balance sheet looks strong, you may be seen as cash-poor if your inventory is not moving.
Tighter Credit Limits: If excess inventory slows your ability to work or revenue, your access to funding may shrink, which can make it even harder to break the cycle.
Margins Quietly Shrink Over Time
Carrying too much inventory leads to slow financial leaks, such as rising insurance premiums, increased energy costs, administrative overhead, and loss from shrinkage or obsolescence.
Inventory Write-Downs: When items become unusable, that loss often hits your bottom line directly.
Strategic Ways to Reduce Excess Inventory
If you’re holding too much inventory, your first instinct might be to offload it fast, but the smarter move is to take a step back and approach it systematically by applying inventory optimization strategies.
Start with an Inventory Audit
Get clarity before you begin leveraging any new inventory optimization strategies. Start by getting the full picture of what’s in storage, where it’s located, and how it aligns with your current and upcoming needs.
Segment by Usability: Identify which items are still relevant, which are aging or obsolete, and which have no clear purpose tied to upcoming projects.
Match Against Demand: Compare your current inventory to active contracts or forecasted jobs. Anything without a clear use case in the near future is a candidate for action.
Stop Reordering Automatically
Many companies overstock by habit. If you set reordering thresholds too high or fail to adjust them during a slowdown, you can easily double your inventory before anyone realizes what happened.
Pause Standing Orders: Put a temporary freeze on automatic purchasing for anything that’s not moving.
Review Forecast Assumptions: Adjust your planning models to reflect actual current demand, not last quarter’s projections.
Bundle or Repackage Inventory
Sometimes the raw materials or partial builds you’re sitting on can be reworked into something more viable. This is especially useful for manufacturers with excess components or semi-finished goods.
Consolidate into Kits: If individual parts are hard to move, consider bundling them into kits for service, repair, or sale.
Convert into Alternate SKUs: Repackage or rebrand materials for different applications if the market allows.
Identify Secondary Channels
Even if materials aren’t moving within your primary business model, it doesn’t necessarily mean they’re worthless. There may be aftermarket, regional, or international buyers who can use what you can’t.
Resell Through Industrial Surplus Platforms: For example, companies like Aucto and HGR specialize in buying and reselling surplus equipment, components, and manufacturing inventory.
Explore Contractor or Subsupplier Needs: Smaller players may have demand for overstock at negotiated rates.
Involve Operations in the Plan
Loop your operations team in. They know what’s needed, what’s viable, and where hidden overstock is likely to be stored.
Create a Cross-Functional Team: Bring together purchasing, production, logistics, and finance to review the strategy.
Set Specific Reduction Goals: Treat it like a project with clear targets rather than a quick cleanup.
Track Weekly Progress
Inventory reduction is easy to deprioritize once work picks back up. To avoid this, layer in accountability.
Assign Ownership: Make a specific person responsible for driving the process and reporting results.
Watch Key Metrics: Inventory turnover rate, carrying cost, and space utilization can be used as indicators of progress.
How to Maintain Liquidity While Reducing Overstock
Your stock level reduction strategy will take time. Unfortunately, your payroll, vendor obligations, and new projects will not wait for you to clear the shelves. Free up cash during the process wherever possible without making shortsighted cuts that can hurt your long-term capacity.
Slow Spending without Stalling Operations
It’s tempting to implement blanket spending freezes when cash feels tight, but doing so can hurt productivity, delay new orders, or damage supplier relationships.
Audit Discretionary Spending: Look for expenses that don’t support current output or won’t help clear inventory.
Leverage Supplier Discounts: If your vendors offer early payment or volume discounts, explore ways to take advantage of them.
Negotiate Short-Term Terms with Vendors
Vendors are often more flexible than businesses expect, especially when it comes to long-term buyers.
Extended Terms: Ask for temporary extensions or payment deferrals on outstanding orders.
Smaller, More Frequent Orders: Shift to leaner procurement cycles to avoid adding to overstock.
Avoid Long-Term Loans and Credit Lines Unless Necessary
Be cautious about taking on traditional loans or leveraging your credit lines.
Weigh the Risks: Traditional loans are often slow to close, hard to qualify for, come with strict terms, and can drain resources with ongoing payments. Meanwhile, credit lines can be challenging to pay off and come with hefty ongoing interest payments.
Consider Alternatives: Rather than borrowing money you have to pay back, explore other funding solutions, such as invoice factoring.
Accelerate Cash Flow with Invoice Factoring
If you have unpaid invoices from B2B customers with strong payment histories, turn them into working capital with invoice factoring, also referred to as accounts receivable factoring. With factoring, you sell your invoices to a factoring company, also called a factor, at a slight discount and get most of the value right away. When your customer pays the invoice on their normal terms, you receive the remaining sum minus a small fee for the service.
Boost Liquidity During Cleanup: Factoring can accelerate cash flow while you’re handling excess inventory management. Use it to ensure you have cash on hand to cover ongoing needs, so your surplus doesn’t slow your growth or cause lasting damage.
Maintain Momentum: Once your cleanup project is complete, continue working with your factoring company as needed to cash in on easy payment and volume discounts with suppliers and ramp up as needed to accept large orders.
Streamline Excess Inventory Management with Charter Capital
If you’re running a business, especially one that’s growing or evolving, you already know how easy it is for things to stall or break down. A continuous improvement culture lets you spot the roadblocks that create those issues and address them early on, so they don’t scale alongside your business or become major problems.
Below, we’ll explore the business case for continuous improvement, plus break down strategies to help you develop a culture of continuous improvement so you can get started right away without overhauling any major systems or processes.
Benefits of Developing a Continuous Improvement Culture
Having a culture of continuous improvement means everyone on your team believes that each part of your business can be a little better, including your processes, customer experience, and team dynamics. Your business benefits from this in lots of ways.
Increased Operational Efficiency
Processes become leaner over time because employees are consistently identifying waste, redundancy, or roadblocks.
Better Customer Experience
When your team is always looking for ways to serve better, customers notice. That translates to a better overall experience, increased loyalty, and more referrals.
Greater Employee Engagement
People want to contribute more than just labor. When they see their ideas implemented, they feel invested in the outcome.
Enhanced Adaptability to Change
Teams trained to improve continuously are more agile, allowing your business to pivot quickly when there are new regulations, supply chain issues, shifts in customer demand, and more.
Stronger Profit Margins
Companies that invest in continuous improvement often see measurable gains due to the areas outlined above. For instance, businesses with highly engaged workforces outperform their peers by 147 percent, according to Forbes. Meanwhile, those that focus on customer experience report 60 percent greater profit than their peers, per CX Index. Further research shows companies lose an average of 20 to 30 percent of their revenue due to inefficiencies, Entrepreneur reports. Creating a culture of continuous improvement can help you eliminate this waste.
How a Continuous Improvement Culture Shows Up in Your Organization
A continuous improvement culture refers to an organizational environment where employees are encouraged to identify and address opportunities for improvement as part of their routine work. Instead of being limited to special initiatives or one-time improvement projects, continuous improvement efforts become part of the organization’s culture and daily operations.
Within an organization that prioritizes continuous learning and development, team members are empowered to take ownership of actions and decisions. This empowerment fosters a culture where improvement ideas are not only welcomed but expected. Effective leadership supports this by removing barriers and providing the improvement tools and structured processes necessary to act quickly and consistently.
Across the entire organization, from customer-facing teams to back-end operations, teams track key performance indicators, share best practices, and test changes to improve results. This cross-functional approach to improvement ensures that every area is aligned with enhancing customer satisfaction and driving operational excellence.
Building a continuous improvement culture requires consistent effort. It involves cultivating a corporate culture where learning, adaptability, and transparency are valued. By embedding a continuous improvement mindset into your training programs, meetings, and metrics, you signal that there’s always room for improvement—and that every team member has a role to play in achieving it.
Organizations that implement a culture of continuous improvement position themselves to respond faster to change, eliminate waste, and gain a competitive advantage in today’s dynamic business environment.
Example of a Continuous Improvement Culture
Toyota’s famous Kaizen approach is one of the best-known case studies of a continuous improvement culture. Employees on the factory floor are trained to stop the production line if they notice a defect. It may sound risky, but it works. The company consistently ranks among the most efficient and high-quality automakers in the world.
5 Surefire Ways to Develop a Continuous Improvement Culture
Now that we’ve covered the background, let’s take a look at how to develop a continuous improvement culture in your business.
1. Make Improvement Part of Daily Work
If improvement feels like something extra, your team will treat it that way. It will get pushed to the side every time things get busy. To build a culture of continuous improvement, you need to position it as part of the job, not an additional task. That starts with you.
Set the tone by making it clear that identifying and fixing small inefficiencies is expected, welcomed, and part of doing great work. Some tips to help you get started are outlined below.
Ask About Roadblocks in Meetings: Ask questions like, “What’s getting in your way?” Build the habit of checking in on friction points. Over time, your team will start thinking about solutions, not just updates.
Request One Improvement Each Week: Encourage the team to identify one small change in an area they control that would make their work easier, faster, or more consistent.
Remove the Red Tape: If someone needs five approvals to fix a broken form or update a checklist, they’ll stop trying. Give teams permission to improve what’s in their control without jumping through hoops.
2. Create Safe Channels for Feedback
Are your employees speaking out about the problems they see every day? If not, it’s not because they don’t have them and don’t see solutions. It’s that they don’t know how to share them or whether it’s ok to share them, even though they may be costing you time, money, or customer trust.
As a leader, you’re in a unique position to create an environment where feedback is expected.
Offer Multiple Ways to Share Feedback: Not everyone is comfortable sharing concerns in a meeting. Some may need a private check-in or prefer to write things down.
Respond without Defensiveness: If someone points out a flaw in a process you created, resist the urge to justify it. Instead, thank them. Even if you don’t act on the feedback, showing appreciation for the input keeps the door open.
Follow Up, Even if the Answer is No: If someone suggests an idea that doesn’t get implemented, explain why. That level of transparency builds trust and keeps ideas coming.
Be Intentional About Who’s in the Room: Junior staff may hold back in groups of mixed rank. Occasionally break people into smaller or peer-level groups to get more honest input.
3. Recognize and Reward Initiative
If you want your team to take ownership of improvement, you have to show that it matters. That means recognizing the effort it takes to spot a problem, suggest a fix, or test a new approach, even when the result isn’t perfect.
People watch what you respond to. If all the praise goes to speed and output, and none goes to problem-solving or experimentation, they’ll stick to what’s safe.
Acknowledge Initiative in Real Time: When someone flags a recurring issue or tries out a better way of doing things, call it out right then, in front of the team, if possible. A quick, specific comment often goes further than a formal award.
Share the Story, Not Just the Result: Improvement is about process. When someone makes a change that worked, explain what they noticed, what they tried, and what it changed. That shows others how to do the same.
Reward the Behavior, Not Just the Outcome: Every idea won’t be successful. That’s fine. What matters is that someone took the initiative to try. Make sure your team knows that effort counts.
Build it into Reviews and Goal-Setting: If your performance conversations never touch on improvement or contribution to team processes, it signals that these things don’t matter. Make them part of how success is measured.
4. Use a Structured Process for Testing Ideas
When someone on your team comes up with an idea, the next step shouldn’t be a mystery. Without a simple, shared process for testing changes, ideas tend to stall. People either overthink it, wait for approval, or assume it’s not their call.
Developing a structure will help. You don’t need complex systems or consulting frameworks, just a consistent way to move ideas into action.
Introduce a Test-And-Learn Model: Saying something like, “Try it for one week and report back,” is enough.
Limit the Scope: Encourage small, reversible experiments. When people know the test won’t break anything, they’re more likely to try.
Keep the Cycle Moving: Don’t let ideas stay in limbo. Even a quick “Go for it” or “Try it next sprint” helps maintain momentum.
5. Set Aside Time to Improve
Even when people are motivated and supported, improvement won’t happen if there’s no time for it. If your team is constantly buried in deadlines, urgent requests, or client work, they’ll default to getting things done rather than making them better.
Protect space for reflection, problem-solving, and small experiments. That doesn’t mean you need to clear time for full-day workshops or pull people off-task. It just means carving out time for improvement to become a regular habit rather than something that’s squeezed in when things slow down.
Build it into Standing Meetings: Dedicate five minutes during team check-ins to ask what could run more smoothly or what’s been slowing people down.
Create Recurring Blocks for Process Work: Give teams one hour a month to clean up outdated resources, streamline tasks, or test small changes. Put it on the calendar and treat it as non-negotiable.
Allow Buffer Time in Schedules: If every minute is booked, there’s no margin for creative thinking or reflection. When possible, leave room between major tasks or projects so teams can adjust what’s not working before moving forward.
Tie Improvement Time to Goals: Connect it to something real, such as reducing client churn, speeding up onboarding, or improving response time. People are more likely to invest the time when they see the link to the results.
Turn Your Ideas into Action with Factoring
Fostering continuous improvement takes more than ideas. You need the right systems, mindset, and financial support. Whether you’re investing in better tools, strengthening your team, or streamlining operations, you need steady working capital to keep that momentum going.
Invoice factoring gives your business the flexibility to fund those improvements without waiting on slow-paying customers. It converts your receivables into cash, so you can keep moving forward. If this sounds like it might be a good fit for your business, request a complimentary rate quote.
“Beware of little expenses; a small leak will sink a great ship,” Benjamin Franklin once said. People often take this quote at face value and focus on the importance of monitoring expenses and implementing cost-cutting strategies. This is part of it, but the often-overlooked wisdom is that you must also build a “ship” that’s more resistant to potential leaks. In this guide, we’ll walk you through how to do both for your business.
When to Consider Cutting Costs
The decision to cut costs must be a strategic one, not just a reaction to financial strain. Reducing expenses at the wrong time or in the wrong areas can create more problems than it solves. Let’s start by taking a look at some scenarios when it makes sense to start cutting costs.
Declining Profit Margins: When Revenue is Strong, But Profits Are Shrinking
If your revenue remains stable or is growing, but your profit margins are getting tighter, it’s time to assess where your money is going. Rising costs in operations, labor, or materials can eat into profitability. Cutting unnecessary expenses before they erode your margins further can help keep your business financially healthy.
Cash Flow Issues: When You Struggle to Cover Day-to-Day Expenses
If you’re constantly waiting for invoices to clear before making payroll, covering operational costs, the issues go deeper than revenue. You’re likely dealing with cash flow management issues, too. Cost-cutting can free up working capital but it should be paired with strategies that stabilize your cash flow without disrupting operations, such as invoice factoring.
Economic Downturns: When Market Conditions Shift
Inflation, supply chain disruptions, and industry slowdowns can impact your revenue. Preparing in advance by reducing unnecessary spending gives your business more flexibility to weather uncertainty. Cost-cutting in these situations should be proactive rather than reactive to avoid scrambling later.
Inefficiencies and Waste: When You Are Paying for What You Don’t Use
Many businesses accumulate unnecessary expenses over time. Reviewing software subscriptions, vendor contracts, and operational redundancies allows you to identify costs that provide little or no value. Eliminating wasteful spending strengthens financial efficiency without compromising productivity.
Growth and Scaling: When You Need to Reallocate Resources
Cost-cutting strategies are often associated with financial trouble, but they’re important when making room for growth, too. Trimming non-essential expenses allows you to reinvest in areas that drive expansion, such as hiring talent, increasing marketing efforts, and upgrading technology.
Cost-Cutting Strategies for Small Businesses
Cutting costs doesn’t mean sacrificing quality or growth. The right strategies can improve business efficiency, free up cash flow, and strengthen your business without negatively impacting operations. Below, we’ll explore how to do this effectively.
Streamlining Operations: Eliminating Bottlenecks and Improving Efficiency
Operational inefficiencies drain time and money. Refining processes and focusing on lean operations can allow you to reduce costs without impacting productivity.
Automation for Repetitive Tasks: Nearly half of all work activities can be automated, according to McKinsey research. Software tools can handle everything from invoicing to payroll and customer service inquiries to reduce administrative costs. A typical business using workflow automation saves $46,000 annually, Formstack reports.
Supplier and Vendor Negotiations: Renegotiating contracts or consolidating suppliers can help you lower costs without affecting quality.
Outsourcing Non-Core Functions: Hiring specialized contractors for tasks like marketing, IT, and accounting can be more cost-effective than maintaining full-time staff. Value-added services from existing providers can also help here. For instance, the average midsize business spends 14 hours per week on invoice-related tasks, according to Intuit. If you’re factoring invoices, your factor collects for you, allowing you to cut out tedious tasks like chasing invoices.
Process Optimization: Analyzing workflows can help you identify unnecessary steps that add time and expenses. Lean process improvements can create cost savings without cutting staff or essential services.
Reducing Overhead Costs: Lowering Fixed Expenses
Fixed costs, such as rent, utilities, and insurance are some of the largest expenses for small businesses. By managing overhead costs effectively, your business can achieve significant savings.
Office Space Adjustments: Downsizing or shifting to remote work can reduce rent and utilities. Going remote can save a business over $10,000 per employee annually, Lemon.io reports.
Energy Efficiency Upgrades: Simple changes, like switching to LED lighting or smart thermostats, can reduce energy costs.
Business Insurance Reviews: Comparing policies annually will help you ensure you’re not overpaying for coverage.
Subscription Audits: Half of all software licenses go unused, TechRadar reports. Eliminating redundant or unused software subscriptions can be a huge help with overhead reduction and improve cash flow.
Smarter Inventory and Supply Chain Management: Avoiding Excess Waste
Inventory mismanagement leads to overstocking, spoilage, and cash flow issues. Managing stock effectively prevents unnecessary expenses.
Supplier Diversification: Having multiple supplier options can provide cost flexibility and prevent disruptions.
Bulk Purchasing Discounts: Negotiating better deals for frequently used materials can reduce long-term costs.
Strategic Marketing Adjustments: Maximizing ROI
Marketing is essential for business growth, but inefficient spending in this area can be costly. Optimizing strategies ensures your budget delivers results.
Performance-Based Advertising: Shifting ad spend to campaigns with measurable ROI ensures you aren’t wasting money on ineffective efforts.
Leveraging Organic Growth Channels: Content marketing, social media, and referrals can generate leads at a lower cost than paid ads. However, it’s essential to diversify your marketing efforts to ensure continuity in the event external conditions impact the output of a single channel.
Email List Optimization: Focusing on high-intent subscribers rather than mass outreach improves engagement and reduces unnecessary costs.
Risks and Rewards of Cutting Costs
Cutting costs can improve financial stability. However, if it’s done incorrectly, it can weaken your business. The key is knowing which cuts are beneficial and which can create long-term damage.
Potential Impact on Growth: Cutting Too Much Can Slow Expansion
Cutting in the wrong areas can limit opportunities for growth by creating issues like those outlined below.
Reduced Marketing Reach: Cutting marketing spend too aggressively can reduce lead generation and slow sales.
Weakened Customer Experience: Lowering customer service budgets or switching to low-quality materials can drive customers away.
Loss of Competitive Edge: Underinvesting in technology or innovation can put your business behind competitors who continue to evolve.
Long-Term Financial Health: The Right Cuts Can Strengthen Stability
When cost-cutting is done strategically, it can improve profitability without harming operations.
Increased Cash Flow: Reducing unnecessary expenses can free up working capital for investment in growth.
Improved Profit Margins: Eliminating waste and inefficiencies helps businesses operate more efficiently.
Greater Financial Resilience: A leaner business structure makes it easier to navigate economic downturns and unexpected challenges.
The Hidden Costs of Cutting Too Much: When Cost-Cutting Backfires
Short-term savings can sometimes lead to long-term expenses. Before making drastic cuts, consider potential consequences.
Employee Productivity Declines: Reducing staff without adjusting workflows can overburden remaining employees, leading to burnout and mistakes.
Lower Customer Retention: Cost-cutting that affects product or service quality can drive customers to competitors.
Increased Operational Disruptions: Eliminating essential tools or services can create inefficiencies that cost more than they save.
Cost Reduction Mistakes Small Businesses Should Avoid
Effective cost reduction strategies require more than trimming the budget. They demand clear thinking, alignment with business needs, and long-term planning. One of the most overlooked errors is cutting tools or services that contribute to operational efficiency. Canceling expense management software or automation platforms, for example, may appear to save costs, but often leads to increased manual work, delayed reporting, or missed insights across business operations.
Another mistake is failing to identify areas with untapped savings potential. Older products may still be in inventory, but if they’re less profitable than newer items, they tie up capital and limit margin improvements. Similarly, businesses often overlook payment terms when working with vendors. Negotiating early payment discounts or better terms based on volume can create significant cost savings without cutting essential services.
Lastly, cost-cutting decisions made in isolation can create internal misalignment. Without input from department heads or staff who manage day-to-day operations, companies risk reducing resources in areas that directly affect productivity. Strategic cost reduction depends on aligning changes with real workflow needs, not just financial projections. This approach not only helps reduce business costs but also ensures you free up resources for investments that support resilience and future growth.
Balancing Expense Reduction with Small Business Growth
Cost-cutting and business growth are not mutually exclusive. Savvy companies reduce waste and inefficiencies while continuing to invest in areas that drive expansion. Let’s take a look at how these strategies can work together.
Investing in Growth While Cutting Costs: Prioritizing High-Value Areas
Some investments generate long-term returns, even when budgets are tight. As you work through your financial planning activities, leave room in your budget for essential expenses.
Revenue-Generating Activities: Cutting marketing, sales efforts, or customer acquisition strategies can limit growth. Instead, shift spending to high-performing channels with a clear return on investment.
Technology and Automation: Automation tools can reduce long-term costs while improving efficiency. Investments in payroll, invoicing, and customer service automation often pay for themselves quickly.
Employee Retention and Development: Reducing turnover saves money. Investing in training and employee well-being can improve productivity and prevent costly hiring cycles.
Achieving Financial Efficiency Without Sacrificing Quality: Smarter Spending Strategies
Instead of broad budgeting cuts, focus on reallocating resources to maximize efficiency.
Eliminate Low-Value Expenses: Regularly review your budget to identify underutilized tools, outdated subscriptions, or services that no longer provide value.
Negotiate Supplier and Vendor Contracts: Many vendors offer discounts for long-term commitments or bulk purchases. Regular contract reviews can lead to better pricing.
Improve Cash Flow Management: Instead of cutting essential services, explore options like invoice factoring to access working capital without taking on debt.
Improve Your Cash Flow Management with Invoice Factoring
The key to successful cost-cutting is balance. Reducing waste while continuing to invest in the right areas ensures that your business stays financially strong and positioned for long-term success. Invoice factoring can play a crucial role in this by accelerating payment on your receivables and making cash inflows more predictable. It can also help you cut out unnecessary expenses related to collections and avoid taking on debt. To find out how factoring fits into your cost-cutting strategies, request a complimentary rate quote.
“If you’re starting a business and you take out a loan, you’re a moron,” Shark Tank investor and long-term entrepreneur Mark Cuban says. While his words may come across as harsh or even crass, he goes on to make a fair point: “There are so many uncertainties involved with starting a business, yet the one certainly that you’ll have to have, is paying back your loan.” This is an area that trips up many startup founders and even causes people to pull money out of their own pockets to fund their business. But, there are ways to fund your new business without using personal funds and without taking out a loan. Two primary options are venture capital (VC) and factoring for startups. Below, we’ll walk you through how they work and why factoring is often the more suitable alternative.
Why Business Financing is Vital for Startups and New Businesses
Virtually all businesses require external capital at some point. However, because startups aren’t running at full speed just yet and their revenue has not stabilized, their capital needs are often much greater than established businesses.
Finance a Startup: Covering Initial Operating Costs
Two in five startups that fail simply ran out of cash, CNBC reports. While it’s easy to say this comes down to poor financial management, costs such as product development, marketing and advertising, and administrative expenses can add up. Many startups tap into funding solutions to cover everyday expenses until revenue picks up.
Using Business Financing to Scale a Startup Business
Once the business takes off, the next step is scaling. While this naturally involves increasing expenses related to raw materials or equipment that require capital, startups often find themselves in need of larger facilities and technology to help manage rapid growth. In these cases, business growth funding allows the startup to scale without cutting corners.
Bridge Cash Flow Gaps and Build a Cushion
Cash flow solutions are often vital for startups and established businesses alike, especially those that serve other businesses. This happens when the business invoices customers after work or goods are delivered, then waits weeks or months for an invoice to be paid.
Attract and Retain Top Talent
Startups have to work especially hard to attract and retain talent. While some do this by offering shares of the company, others seal the deal with competitive salaries, hiring bonuses, and perks. This, paired with the costs of finding and onboarding talent, can add to the financial load.
Venture Capital Explained
VC is a type of funding that fuels startups with high growth potential. Around $171 billion is awarded in VC each year, Statista reports. However, funding is down in recent years, with the U.S. showing nearly a 30 percent decline, according to InvestmentNews. Industries like tech, healthcare, and renewable energy, where rapid scaling and large returns are expected, tend to get the most attention from venture capitalists.
Unlike loans or other financing options, VC does not require repayment. Instead, investors provide capital in exchange for equity. In other words, they own a portion of your business. However, this also means they’re usually bringing expertise, mentorship, and connections to your startup in addition to cash.
How Venture Capital Works
VC is very different from other alternative funding solutions, and the full process can take anywhere from around three to six months.
1. Pitch
Startups usually pitch their business to VC firms or angel investors. You’ll need to present a clear value proposition, a detailed business plan, and evidence of market demand and growth potential.
2. Due Diligence
If the VC firm is interested, they’ll dig into your business. This includes analyzing your financials, performing market research, evaluating your team, and doing competitor analysis.
3. Investment
Once they’re satisfied, the firm will provide funding in exchange for equity. There’s usually some negotiation during this stage.
The funding is often released in stages, referred to as rounds, that are tied to milestones. Common rounds include:
Seed Funding: Generally speaking, seed funding should last your business 12 to 24 months and helps you get your business off the ground. An average deal will be in the neighborhood of $3.5 million and the investor will receive anywhere between 15 and 35 percent of your company’s equity in exchange.
Series A, B, and C: Subsequent rounds, including Series A, B, and C, each provide a business with anywhere from 12 to 18 months of cash. These phases are designed to help the business scale operations, enter new markets, or develop new products. Deals can provide the business with anywhere from around $20 million to $60 million or more, with each round taking anywhere from roughly ten to 30 percent of the company’s equity.
4. Active Involvement
VC firms often take an active role in your company. They may be involved in decisions, help you scale, build partnerships, and even help you navigate exits like IPOs and acquisitions.
How Startup Business Owners Can Qualify for Venture Capital
Roughly 98 to 99 percent of businesses that request venture capital are denied, Forbes reports. This is because VCs have rigid requirements like those outlined below.
A Disruptive Idea: Your product or service must solve a significant problem or address an unmet market need.
Scalability: Your business must be poised for rapid growth. VCs also want startups that can scale exponentially, not just incrementally.
A Strong Team: Your leadership team’s experience, resilience, and vision are critical. VCs invest as much in people as they do in ideas.
Traction: While early-stage startups can secure funding, VCs often want proof of traction, such as customer growth, revenue, or partnerships.
Benefits of Venture Capital for Startups
There are a few benefits that set VC apart from other types of funding.
Large Sums of Money: VCs can provide millions of dollars, enabling businesses to grow rapidly and enter markets.
Strategic Expertise: VCs often have industry expertise and provide mentorship, which can help shorten the learning curve and help you avoid issues.
Networking Opportunities: VCs can connect you with other investors, customers, and business partners, which can facilitate growth.
No Immediate Debt: Since VC funding isn’t a loan, there are no monthly payments or interest to worry about.
Drawbacks of Venture Capital for Startups
Despite the benefits, VC comes at a cost.
Loss of Control: Giving up equity means investors have a say in major decisions. Some VCs even require a seat on your board of directors.
High Expectations: VCs prioritize rapid growth and high returns. This can make startup founders feel pressured to scale faster than they’re ready and force them to make decisions that prioritize investor return on investment (ROI) over long-term sustainability or values.
Rigorous Qualifications: The application process is lengthy and competitive. Many startups spend months pitching without success.
Equity Dilution: The more funding rounds you go through, the smaller your ownership stake becomes. If your company eventually sells, your payout may be significantly reduced.
Invoice Factoring Explained
Invoice factoring is a type of funding that’s popular with businesses that serve other businesses, especially those that invoice and offer lengthy payment terms. The total U.S. market size is valued at roughly $172 billion annually, according to Grand View Research.
Like venture capital, factoring does not require the business to take on debt. However, instead of giving up equity in exchange for capital, you sell your unpaid invoices to a factoring company for immediate cash.
How Invoice Factoring Works
The factoring process is simple and straightforward. Depending on your level of preparedness and the factoring company you choose, your business can be approved and receive cash in just a day or two.
1. Submit Your Invoice
You provide your factoring company with an unpaid client invoice. The factor then assesses its value and the creditworthiness of your client.
2. Receive Your Advance
Once approved, the factor sends you money immediately. This advance is usually between 70 and 90 percent of the invoice’s value, though it can be more or less depending on factors like your industry and the creditworthiness of the client. The remaining balance is held as a reserve.
3. Receive Your Reserve
Your client pays the factoring company when the invoice is due based on the terms you’ve set with your client. Once the invoice is paid, you receive the reserve, minus a small fee for the service.
How to Qualify for Factoring
One of the best things about factoring is that it’s relatively easy to qualify for compared to traditional loans or venture capital. Let’s review what factoring companies typically look for.
Creditworthy Clients: Since repayment depends on your clients, factoring companies focus on their ability to pay invoices on time rather than your credit score.
Invoice Validity: The invoices you factor must be legitimate and free of disputes.
Industry Fit: Factoring is especially common in industries like trucking, manufacturing, and staffing, where payment delays are common.
Consistent Revenue: Startups can qualify, though you’ll usually need to have been in business for a few months and have steady invoicing.
Benefits of Factoring for Startups
The unique way that factoring works means it comes with a wealth of benefits for startups.
Easy Approval: Factoring doesn’t require stellar credit or years of financial history.
Fast Cash Flow: Factoring typically pays out in one or two business days. However, when you partner with a factoring company like Charter Capital, you can qualify for same-day funding. This makes it ideal for businesses with urgent cash flow needs.
No Debt: Because factoring is not a loan, it doesn’t add to your liabilities or hurt your credit score.
Flexible Terms: Use factoring as a one-time solution or on an ongoing basis. You can factor invoices as needed.
Drawbacks of Factoring for Startups
While factoring has many benefits, there are some things businesses should be aware of before signing up.
Cost: A typical factoring fee can be anywhere from one to five percent of an invoice’s value. While this is a small amount, it’s important to approach it responsibly and ensure you’re receiving ROI.
Client Interaction: Your factoring company will likely have contact with your clients when verifying invoices and collecting. Be sure to partner with a factor that has a good reputation and a strong sense of professionalism.
Limited to Invoiced Businesses: Factoring is only an option for companies that invoice clients for services or products after delivery.
Client Risk: If your clients have poor payment habits, the factoring company may offer terms that reflect the increased risk or decline to factor their invoices.
Key Differences Between Invoice Factoring vs. Venture Capital
When it comes to funding your startup, both VC and factoring offer unique advantages. Let’s take a look at how they stack up.
Ownership and Control
VC requires you to give up a portion of your equity, which means sharing decisions with investors. Factoring does not. If maintaining control of your business is important to you, factoring is the better solution.
Factoring vs. Bank Loan: Which Provides Faster Funding?
From pitch to funding, it takes months to see cash from VC. Conversely, factoring can provide funds right away. If your startup needs funding now or within the next 90 days, factoring comes out on top.
Eligibility and Requirements
VC firms are very selective and look for rapid growth potential. Factoring companies focus on your clients’ ability to repay their invoices. If you’re in a consumer industry or poised for exponential growth, VC might work for you. If you operate a B2B business, factoring will be more accessible.
Cost
While VC doesn’t require repayment, it still comes at a cost—equity in your business. Conversely, factoring comes with a small fee. It’s a transparent and manageable cost that doesn’t impact your long-term profitability. If keeping profits within your business matters more than raising large sums, factoring offers better value.
Purpose of Funding
VC is ideal for large-scale, high-risk initiatives like R&D, market expansion, or launching a disruptive new product. Factoring is designed to address cash flow issues. It’s well-suited for things like payroll, purchasing inventory, or managing day-to-day expenses while you wait for clients to pay.
Long-Term Impact on Your Business
While VC can bring mentorship and networking opportunities, the pressure to grow quickly and deliver high returns can lead to risky decisions that may harm your business in the long run. Factoring, on the other hand, provides funding without influencing your strategy. You can grow at your own pace without external pressure.
Understanding Factoring Rates: What Startups Need to Know
Factoring rates determine how much factoring companies charge when purchasing outstanding invoices from a business. These rates typically range from one to five percent of the invoice amount, depending on factors such as invoice value, industry risk, and client creditworthiness. Unlike a startup business loan, which requires scheduled repayments, invoice factoring for startup companies provides immediate cash flow without adding debt.
There are two primary types of factoring agreements: recourse factoring and non-recourse factoring. With recourse factoring, the business is responsible if a client doesn’t pay their invoice, whereas in non-recourse factoring, the factoring company assumes the risk—but at a higher cost. Startups should weigh the benefits of non-recourse factoring agreements against their higher factoring rates to determine the best fit for their needs.
Beyond the percentage of the invoice value deducted as a fee, some factoring companies charge additional costs for same-day funding, credit checks, and transaction processing. Comparing multiple factoring partners helps startups secure lower factoring fees while ensuring a factoring agreement that aligns with their business funding needs.
Unlike a loan or line of credit, invoice factoring provides fast access to cash by unlocking funds tied up in unpaid invoices, allowing startups to reinvest in operations and growth. Understanding the cost of factoring ensures startups can use invoice factoring effectively as a financing solution without unexpected expenses.
Find the Best Startup Factoring Solution for Your Business
If your startup requires funding and traditional financing, and VC don’t align with your needs, factoring may be the accessible solution you’re looking for. With decades of experience supporting growing businesses and competitive rates, Charter Capital can help you bridge cash flow gaps and build a stronger company without taking on debt. To explore the fit more, request a complimentary rate quote.
Profitability slipping or cash flow feeling tight? One of the biggest culprits for small and growing businesses is overhead. By mastering the art of managing business overhead costs and using practical cost-saving strategies, you can boost your bottom line and create financial stability. On this page, we’ll walk you through the nuances of business overhead, why managing it effectively is so impactful, and cover some tips you can implement to start seeing results right away.
Business Overhead: Definition and Types
Before we break down how to reduce overhead expenses, let’s take a quick look at exactly what overhead is and why it’s key to improving profitability.
What Are Overhead Costs?
Overhead costs are ongoing expenses that support your operations but don’t generate revenue.
Common Types Overhead Expenses
Overhead costs can be categorized into production, administrative, selling, and financial expenses. Each plays a unique role in your business operations.
Production Overhead / Manufacturing Overhead
Production overhead, also referred to as manufacturing overhead, includes costs that are indirectly tied to producing goods or services. While they don’t include materials or labor, they’re essential for production. Being able to identify and isolate these expenses makes it easier to set accurate pricing and improve profit margins. Let’s take a quick look at some examples.
Equipment Maintenance: Servicing machines used in production.
Factory Utilities: Power and water used at a manufacturing site.
Depreciation: Gradual wear and tear on machinery or factoring buildings.
Supervisory Salaries: Payroll for production managers or quality control staff.
Factory Supplies: Tools, cleaning materials, and lubricants.
It’s worth noting that not all businesses will have production overhead. For instance, many service-oriented businesses, such as consultancies, security firms, or staffing agencies, won’t have these expenses because they don’t engage in manufacturing or product creation. If you’re in an industry that does not have production overhead, you’ll want to use terms like “operational overhead” or “project overhead” instead, as these will reflect costs that are indirectly tied to delivering your services. For instance, a staffing company would likely include recruitment tools, such as access to LinkedIn Recruiter or job board subscriptions, in these costs. Things like background checks and payroll management for temporary staff would also fit into this category.
Administrative Overhead
Costs related to running the day-to-day operations of your business are considered administrative overhead. These expenses are not tied to production or sales but are essential for keeping the business functional. Some examples are covered below.
Office Supplies: Common office supplies such as pens, paper, and software subscriptions for general use.
Salaries: Human resources, accounting, IT staff, and other salaries that impact the whole company.
Compliance Costs: Legal fees, licensing, and regulatory filings.
Selling Overhead
Costs that are associated with promoting or selling your products or services are considered selling overhead. These expenses support revenue generation and ensure your product reaches your audience and stays competitive in the market. They do not include the cost of goods sold (COGS). A few examples are highlighted below.
Advertising: This includes everything from social media campaigns to Google Ads and billboard rentals.
Sales, Salaries, and Commissions: Pay for sales reps and incentives for hitting targets or commission for referral partners.
Promotional Materials: Flyers, brochures, and branded giveaways.
Travel Expenses: For salespeople meeting with clients or attending trade shows.
Customer Relationship Management (CRM) Software: Tools to manage customer relationships and track sales pipelines.
Financial Overhead
Costs that are tied to the financial management of your business are considered financial overhead. These expenses don’t directly drive revenue or production but are critical for financial health. Effectively managing financial overhead keeps your borrowing costs low and improves cash flow. A few examples of financial overhead are covered below.
Loan Interest: Payments on loans or lines of credit.
Factoring Fees: Costs related to cash advances secured through invoice factoring.
Bank Fees: Charges for account maintenance or international transactions.
Accounting Services: Fees for bookkeeping or tax preparation.
Bad Debts: Money lost from customers who fail to pay.
Insurance: Coverage for assets like vehicles or accounts receivable.
Fixed vs. Variable Overhead Costs
Oftentimes, you’ll hear of an overhead expense being referred to as “fixed” or “variable.” It’s easier to manage them effectively when you evaluate these categories individually.
Fixed Overhead
A fixed overhead cost stays consistent regardless of how much your business sells or produces. These expenses are often predictable and unavoidable. Examples include rent or lease payments, equipment depreciation, and salaries of administrative staff.
Variable Overhead
A variable overhead cost fluctuates with your business activity levels. These expenses are more flexible and can provide opportunities to cut costs during slower periods. You’ll want to track them separately so that you can easily spot places to cut costs in slow months without impacting critical operations. Examples include office supplies, shipping costs, and temporary labor.
Direct vs. Indirect Overhead Costs
Another way to look at overhead is to determine whether the cost is directly tied to specific business activities or spread across the organization. Being able to split expenses into these categories is useful for cost allocation, especially if you’re budgeting for multiple projects or lines of business.
Direct Overhead
Expenses that are linked to a particular project, product, or department are considered direct overhead. Examples include rent for a dedicated manufacturing facility and maintenance of a specific machine used for production.
Indirect Overhead
Broader expenses that benefit the business as a whole are considered indirect overhead. Examples include utilities, office supplies, and salaries for your human resources department or accounting team.
Overhead Costs vs. Operating Expenses
The terms “overhead costs” and “operating expenses” are often used interchangeably, but they mean different things.
Operating Expenses
Operating costs include all expenses required to keep your business running every day. This is a broad category that encompasses both direct and indirect costs.
Direct Operating Costs: Expenses tied directly to producing goods or services, such as raw materials or direct labor.
Indirect Operating Costs: Expenses that are not tied directly to production but that are still essential for operations, such as rent, utilities, or administrative salaries.
Overhead Costs
Overhead refers specifically to indirect costs that support your business but aren’t directly tied to production or sales. It’s a subset of operating costs.
Why Overhead Management Matters for Reducing Business Overhead Costs
Effectively managing your overhead is crucial to maintaining a healthy and profitable business. Let’s take a quick look at the reasons behind this.
Your Protect Your Profit Margins
Overhead costs don’t directly generate revenue but they eat into your profits. By keeping them under control, you ensure your business remains profitable even when sales fluctuate.
Cash Flow Improves
Lower overhead means more cash is available for essentials like payroll, inventory, or growth supplies.
Operational Efficiency Increases
Streamlining overhead costs helps you eliminate waste and focus resources on what truly drives value for your business.
You Can Price Your Offerings More Competitively
A lean overhead structure allows you to price products or services more competitively without sacrificing profitability.
Financial Resilience Gets a Boost
Efficient overhead expense management prepares your business for unexpected challenges, like market downturns or rising costs.
Calculating and Benchmarking Overhead Costs
For most businesses, the goal is to keep overhead costs as low as possible without damaging quality or creating inefficiencies. But, you might wonder how you stack up to your peers. Are your operating costs normal? Do you need to keep chipping away at them or is it ok to divert your attention to other things for a while?
Measuring Overhead Costs
To understand where you sit, find out what percentage of your monthly sales goes to covering overhead using the following equation:
Monthly Overhead Costs ÷ Monthly Sales x 100 = % of Sales for Each Month
For instance, let’s say your monthly revenue is $250,000 and your overhead is $50,000. Your overhead rate is 20 percent.
Benchmarking Overhead Costs
Generally speaking, your overhead should be 35 percent or less of your total monthly sales. However, there are variances by industry and even within industries. For instance, a large trucking fleet might have an overhead rate of 25 percent, while an owner-operator might be closer to 20 percent. But, bear in mind this only reflects overhead costs. A typical trucking company has a profit margin just 2.5 to six percent, as Boss Magazine reports. Operating costs eat up the rest.
Meanwhile, manufacturing businesses tend to sit around 35 percent, Harvard Business review (HBR) reports. There are also some outlier industries. For instance, an SaaS company may be able to whittle their overhead rate down to five to 15 percent, while professional services firms often sit on the higher end of the spectrum, funneling 50 to 70 percent of their sales into overhead.
Understanding where your business fits on the spectrum can help you identify areas to optimize. For instance, low-overhead businesses will likely want to focus on scaling revenue and maintaining cost discipline, while high-overhead businesses should evaluate whether costs like office space or marketing align with their business growth.
9 Cost-Saving Strategies for Managing Business Overhead
Now that we’ve covered the basics of business overhead, let’s explore some overhead cost reduction tactics to leverage in your financial planning activities.
1. Review Overhead Costs Quarterly
Reviewing overhead costs regularly allows you to take a proactive approach to managing them. Perform quarterly reviews to identify trends, spot unnecessary spending, and make adjustments before costs spiral out of control.
For example, you might notice rising subscription fees for software you no longer use or excessive utility costs due to inefficient equipment. Addressing these issues promptly can save your business significant money.
A quarterly review also ensures your overhead aligns with revenue. If revenue dips, you can scale back on non-essential expenses like temporary labor. Conversely, during growth periods, you can invest in critical areas like new technology.
2. Review Contracts Regularly
Aim to review contracts at least annually. This will help ensure you’re getting the best value for services like leases, software, and vendor agreements. Over time, contracts may become outdated and you could end up overpaying or locked into unfavorable terms.
For instance, your internet provider may have introduced faster, cheaper plans, or a supplier could offer discounts for bulk orders. By revisiting contracts, you can renegotiate terms, seek competitive bids, or cancel unnecessary services.
Additionally, reviewing contracts ensures compliance and keeps your business protected. For instance, liability insurance may need adjustments as your business grows.
3. Manage Inventory Carefully
Careful inventory management minimizes overhead costs tied to storage, insurance, and obsolescence. Excess inventory can result in missed sales or production delays.
Implement strategies like just-in-time (JIT) inventory to order supplies only when need, reducing storage costs. Use inventory management software to track stock levels, identify slow-moving items, and forecast demand accurately.
4. Leverage Tech
Streamlining business operations through technology and automation can produce impressive savings. Tools like accounting software, CRM systems, and inventory management can replace time-consuming manual tasks and increase accuracy. Even small investments in tools that leverage artificial intelligence (AI) can make a major difference.
For example, automating payroll reduces the need for administrative staff, while scheduling software ensures optimal workforce allocation to avoid unnecessary labor costs.
Cloud-based tools also eliminate the need for costly physical infrastructure like servers, plus may allow teams to collaborate remotely and reduce office space needs.
5. Reduce Energy Consumption
Reducing energy usage is a simple yet impactful way to cut overhead costs. Start by auditing your energy consumption to identify inefficiencies. Replace outdated equipment with energy-efficient alternatives, such as LED lighting or ENERGY STAR-certified appliances.
Smart thermostats and motion-sensor lights can reduce waste even more by optimizing usage based on activity. For instance, adjusting HVAC systems to operate only during business hours can significantly lower utility bills.
Encourage energy-saving habits among employees, like powering down devices at the end of the day. If feasible, consider renewable energy options, such as solar panels, for long-term savings.
6. Go Paperless
A typical business saves more than $7,500 annually per employee by cutting out paper, according to Pearson research. Transitioning to a paperless system reduces overhead costs associated with printing, storage, and waste management. Switching to digital tools for invoicing, recordkeeping, and communication saves money on paper, ink, and office supplies, while also streamlining workflows.
For example, employees and clients adopt paperless practices by using tools like email for communication and electronic payments for billing. This reduces costs and also aligns with sustainability goals, which appeals to eco-conscious clients and partners.
7. Go Remote
Businesses can save over $10,000 per year per employee by going remote, Lemon.io reports. Adopting a remote work model, even partially, can significantly reduce overhead costs by cutting expenses like office space, utilities, and on-site amenities. With employees working from home, businesses can downsize or eliminate physical offices, saving thousands or more annually in rent and maintenance.
For example, a consulting firm that shifts to a fully remote model no longer needs to lease a downtown office, reducing overhead while maintaining productivity. Cloud-based tools and video conferencing software ensure seamless collaboration without needing to physically share the same space.
Remote work also offers flexibility to hire talent from lower-cost regions, reducing payroll overhead. Hybrid models, where employees only come in occasionally, further minimize costs while preserving a physical presence when necessary.
8. Cross-Train Your Team
Cross-training your employees helps reduce overhead by creating a more versatile and efficient workforce. When team members are trained in multiple roles, you can handle fluctuations in workload without relying on additional hires or temporary staff.
For example, during peak periods, an administrative assistant trained in customer service can step in to handle client inquiries, reducing the need for overtime or extra staff. Similarly, employees who can cover each other’s roles minimize downtime due to vacations or unexpected absences.
Cross-training also improves operational flexibility, so you can redistribute resources to critical areas during transitions or growth phases. Plus, it boosts employee engagement by fostering new skills and career development.
9. Outsource Non-Core Tasks
Outsourcing non-core tasks helps reduce overhead by allowing you to focus on your primary business operations. Functions like payroll, IT support, customer service, or marketing can be handled by external experts at a lower cost than maintaining in-house teams.
For example, a small business might outsource bookkeeping to a third-party accounting firm and avoid the expense of hiring a full-time accountant. Similarly, outsourcing IT support eliminates the need for costly infrastructure and salaries for an in-house team.
When Cutting Overhead Costs Hurts More Than It Helps
Reducing overhead costs is essential for maintaining profitability, but cutting the wrong expenses can disrupt operations and hinder growth. While there are many ways to reduce overhead costs, eliminating critical business expenses without a strategy can lead to inefficiencies, reduced productivity, and higher long-term costs.
One common mistake is reducing semi-variable overhead costs, such as software subscriptions, equipment maintenance, or employee training. These ongoing costs may seem like an easy target, but cutting them can negatively impact efficiency, service quality, and future scalability. Similarly, slashing fixed costs like rental costs or essential administrative costs may create operational disruptions that outweigh the savings.
Before making cuts, small business owners should first calculate their overhead expenses and evaluate whether reductions will genuinely improve financial health. Instead of drastic cuts, a better way to reduce your overhead costs is by renegotiating contracts, improving efficiency, or shifting certain expenses to variable costs where possible.
Careful cost management ensures that overhead costs remain under control without sacrificing the resources needed to grow your business and maintain stability. Thoughtful adjustments, rather than indiscriminate cuts, help businesses keep costs low while preserving essential operations.
Leverage Factoring for a Multifaceted Overhead Win
Invoice factoring provides businesses with immediate capital for their unpaid B2B invoices. Because of the unique way it works, it can help address overhead costs on a number of fronts. For instance, with factoring, you’re in control of when you factor, which makes it easy to manage financial overhead costs. Plus, when you work with a factoring company like Charter Capital, we’ll take steps to help ensure your receivables are paid in full, reducing the risk of bad debt. We also take care of collecting the balances for you, similar to the way collections outsourcing works. If you’d like to start getting paid faster for your hard work and want to improve your overhead with invoice factoring, request a complimentary rate quote.
Success metrics, or factoring key performance indicators (KPIs), are tools you can use to measure the real impact invoice factoring has on your business. They turn broad ideas like “better cash flow” or “faster growth” into numbers you can track. By watching these business performance indicators over time, you can:
What Surplus Equipment Really Looks Like
