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Tag: cash flow

Cash Flow refers to the total amount of money moving into and out of a business.

  • 9 Tips for Funding and Managing Vendor Payments

    9 Tips for Funding and Managing Vendor Payments

    9 Tips for Funding and Managing Vendor Payments

    As your business growth opportunities rise, managing vendor payments can often become a time-consuming and complicated task. This puts unnecessary strain on you, your business, and on supplier relationships, but it’s easier to fix than you might think.

    On this page, we’ll explore what can go wrong in the vendor payment process, plus explore some best practices in vendor management that you can start applying right away to make life easier for everyone.

    Common Vendor Payment Issues

    When vendor payment management is lacking, you’ll start to notice some or all the signs below.

    Late Payments

    Nearly three-quarters of procurement professionals say late payments strain business relationships per PYMNTS surveys. Yet, more than 40 percent of businesses report having a late payment fee in the past year, other PYMNTS surveys show. This is one of the more obvious signs your vendor payment management strategy is lacking, but it’s often dismissed as a one-time oversight and goes unaddressed.

    A Lack of Visibility into Supplier Spending

    It’s often difficult to keep track of expenses in today’s subscription-based society. At home, you might sign up for three different streaming services, then forget you have them. The same thing happens at work, but it’s amplified. It’s not just you setting up auto-charges. It’s multiple people across multiple cards. Sometimes businesses pay for multiple subscriptions to the same service or place the same order twice just because there’s no visibility or bird’s-eye view of what’s happening.

    Manual Invoice Approval Processes

    Many businesses don’t see manual approval processes as being a vendor payment issue. However, it’s one of the top reasons businesses report late vendor payments, according to PYMNTS. Between the lack of efficiency and entry errors, manual approval processes can cause many vendor-related issues.

    Security Issues

    It can take a considerable amount of time to recover after a security breach, and you may not be able to pay suppliers in the interim. You may have security issues if you’re:

    • Mailing payments
    • Making payments through unencrypted portals
    • Failing to take steps to protect cards and account numbers

    9 Tips to Improve Your Vendor Payment Process

    When you manage vendor payments effectively, you’ll keep more money in your business, have better cash flow, and have better relationships with your suppliers. Apply these nine tips and start improving your vendor payment strategy right away.

    1. Automate Your Invoice Processes with Vendor Payment Software

    Accounts payable (AP) automation addresses some of the most common vendor payment issues. It helps ensure you don’t lose track of payables, boosts efficiency, and can help you save money in the long run.

    2. Track All Your Due Payments

    You should have a good idea of what’s coming due even before you receive an invoice. Good accounting software will allow you to add purchase orders to the system and help you predict what needs to be paid and when it needs to be paid.

    3. Prioritize Paying Your Vendors Early

    Paying on time is crucial to maintaining strong vendor relationships. Because these relationships can determine everything from who receives supplies in a crunch to pricing, timely payments are essential for the health of your business too.

    With that said, sometimes vendors incentivize early payments. Try to get payments out within the specified window to not only delight your vendors with rapid payments but also to keep more money in your pocket.

    4. Centralize Your Invoice Payments with a Vendor Payment System

    Sometimes AP software is fairly basic and only allows you to track what’s due and what’s been paid based on invoices you’ve received. That’s not nearly enough if you have multiple team members with credit cards or different departments paying their own bills with no general oversight. That’s how companies wind up hemorrhaging money by having duplicate subscriptions and subscriptions to tools nobody uses anymore. Ensure there’s enough transparency so that you can see what each credit card transaction is.

    5. Set and Implement a Clear Vendor Management Policy

    A strong vendor management policy helps your business minimize risk, ensure continuity, and maintain better relationships with your suppliers. As a start, your vendor management policy should include:

    • How your business sources vendors
    • Policies for contract negotiations
    • How vendors are onboarded
    • Policies for setting service-level agreements (SLAs) and penalties for failure to meet them
    • Vendor risk management procedures
    • Payment policies

    6. Ensure Invoice Accuracy 

    American businesses lose an average of $300,000 per year due to fraudulent invoices, according to Medius research. Moreover, around a quarter of finance professionals can’t estimate the cost of invoice fraud to their business. Each invoice you have should be matched up to a purchase order prior to payment. That way, you catch any legitimate fraud and don’t wind up paying for genuine errors or unintentional duplicate bills either.

    7. Accept Accountability Where Necessary

    If you’re not making timely payments or are having other vendor payment issues, it’s important to own up to your mistakes and let the vendor know you’re taking steps to correct the problems. You don’t necessarily need to tell them what happened or why—sharing too much financial info increases your risk—but at least letting them know you take the matter seriously can help maintain the relationship despite issues.

    8. Conduct Regular Audits

    Audits are typically performed on an annual basis by a third party who looks at your:

    • Balance Sheet
    • Purchase Orders
    • Check Register
    • Supplier Invoices
    • General Ledger

    The goal is to confirm the completeness, accuracy, and validity of your records. If you’re not ready to bring in an external auditor just yet, perform your own and ensure everything matches up.

    9. Make Sure You Always Have Capital for Vendor Payments

    Sometimes, businesses make cash flow mistakes or simply experience a period of rapid growth that leaves them short on cash. Your vendor payments should still be prioritized. Explore options to increase working capital.

    Get Ahead of Cash Flow Issues with Invoice Factoring

    If you’re unable to make vendor payments on time due to cash flow issues, invoice factoring from Charter Capital can help. We accelerate payment on B2B invoices on an as-needed basis, so your business can maintain strong vendor relationships, avoid late fees, and operate at its best. To learn more or get started, request a complimentary factoring quote.

  • 8 Telltale Signs it’s Time to Expand Your Business

    8 Telltale Signs it’s Time to Expand Your Business

    8 Telltale Signs it’s Time to Expand Your Business

    Want to expand your business but not sure the timing is right? With the majority of small business owners feeling confident about the future, per Small Business Majority surveys, now may be the best time to grow. Below, we’ll explore some signs it’s time to expand your business and cover some tips to help you get started.

    How Do You Know When to Expand Your Business?

    Look for some of these signs that you’re primed for success before expanding a small business.

    1. Demand Exceeds Supply

    One of the biggest signs a business is ready for growth is that customer demand is exceeding supply. It’s easy to tell if this is happening when you’re selling raw goods because your stock sells out before you can replenish it or as soon as you restock. If you run a service-oriented business, however, you may be overbooked, have long waits for bookings, or have a lengthy waitlist instead.

    It’s worth noting that you may see these types of shifts when you’re scaling during peak season as well, so it’s essential to review your records to ensure you’re not experiencing a cyclical shift before committing to expansion.

    2. You Have a Strong Team

    A diverse team with well-trained and engaged employees is crucial to growing your business. Teams that work well together are better at solving problems, more innovative, and more productive, per Atlassian. They’re also happier and less prone to burnout – all things that can help ensure your growth initiatives are successful.

    3. Space is Becoming Limited

    Whether you have a line out the door, limited customer space inside your business, or are running out of space to keep adequate inventory on hand, it’s a good sign that you’re ready to add a location or move to a larger location.

    4. Your Company is Meeting its Goals

    If you’re meeting your goals and your metrics are solid, it usually means that you have the right systems, processes, and resources in place to run a healthy business. You can duplicate these successful practices as you expand your business.

    5. Your Industry is Expanding

    Sometimes industries stagnate or start to fade away like in-person video rentals did as streaming services became popular. Industry declines like this are a warning sign to hold off on expansion.

     Other times, an industry starts generating more interest or booming. This was seen in the short-term with sanitizing products at the start of the pandemic. Other, more long-term industry growth has been seen in niches like green cleaning products, artificial intelligence, and mental health care. Determine if your industry and niche are growing in a similar way. If they are, it’s a good time to explore whether you can expand your business.

    6. Customers Are Reaching Out to You

    Sometimes, customers are vocal and will literally tell you that they want more products, services, or locations. You can also solicit this type of feedback through surveys. However, you’re more likely to “hear” these types of requests through customer actions instead. For example, customers may say they’re traveling to visit your business, you may receive calls outside your service area, or you may realize you’re shipping products to a larger area. Analyze your customer data or CRM to gain insights and improve customer service.

    7. You Have a Solid Business Growth Plan

    There are many different ways to grow your business beyond opening a new location. If you’ve explored the various marketing strategies and have a written plan, you’re off to a good start. However, sharing your plan with at least one trusted confidant is also advantageous. Choose someone who understands your business and is comfortable raising questions or concerns. It’s better if they poke holes in your plan or make you think critically about it now than to discover you may have overlooked something after launching an initiative.

    8. You Have Enough Capital to Expand Your Business

    Around 90 percent of startups fail, per the Startup Genome Report. Premature scaling is often to blame, with funding-related issues among the top five causes. Similar issues are seen with established businesses too. For example, 82 percent of business failures are traced to poor cash flow management per NFIB research. In this sense, it’s not a lack of capital, but often spending and budgeting issues, or even poor collections processes, that ultimately damage the business.

    If your business financials are strong and you have enough working capital to invest in growth initiatives, you’re in a good position to expand your business.

    Ways to Expand Your Business: Where to Start

    If you’re seeing one or more of the telltale signs, it’s time to grow your business, the next phase is planning the actual expansion.

    Create a Detailed Expansion Plan

    If you don’t already have a business growth plan, as covered in point seven above, start there. Work out a full budget with anticipated expenses.

    Adjust Your Marketing Strategy

    Your new marketing strategy may be identical to the one you already have, but make sure you’re looking at any changes to the target customers/ personas and any competitive advantages possessed by your business. Also, make note of how the sales team will handle new leads or changes to the sales flow.

    Look into Legal Requirements

    Depending on your expansion strategy, you may need to change your business’s legal structure. For example, instead of operating as a sole proprietorship or partnership, it might make more sense to form an LLC or corporation. You’ll also need to ensure you have the right licenses and permits and that you’re registered with the appropriate agencies in any jurisdictions in which you plan to operate. A business attorney and/or tax specialist can help ensure you’re covering all the bases to minimize your liabilities.

    Ensure You Can Finance the Expansion Comfortably

    Working capital issues and funding shortfalls will not only derail your expansion plans but can put your entire business in jeopardy. Even if you think you’ll have adequate working capital to launch your growth initiatives, research what avenues will be available if you have an unexpected working capital shortfall later.

    For example, invoice factoring can accelerate payments on your B2B invoices. You don’t need to factor all your invoices or factor with every client. However, if you build a relationship with an invoice factoring company before you need funding, you’ll get faster funding and possibly even same-day payments if you need them later.

    Expand Your Business with Help from Charter Capital

    As a leading invoice factoring company, Charter Capital makes it easy to secure working capital when you need it most. There are no sign-up costs and no long-term contracts, plus most businesses will qualify. You can use your factoring cash to fund growth initiatives right away or simply sign up and be prepared in case your business needs a quick cash injection later while it’s growing. To learn more, contact us today or request a free quote.

    4 Ways to Expand Your Business Infographic | 8 Telltale Signs it's Time to Expand Your Business
  • Supply Chain Disruption: How to Minimize Impact and Recover Faster

    Supply Chain Disruption: How to Minimize Impact and Recover Faster

    Supply Chain Disruption: How to Minimize Impact and Recover Faster

    A supply chain disruption can impact your ability to serve customers and run a profitable business. Issues can creep up at any time too. While you may not be able to prevent these disruptions entirely, you can take steps now to minimize their impact and be prepared, so your business operations recover faster.

    On this page, we’ll cover a few types of supply chain disruptions, explore real-world examples, and then cover some tips that will help your business be more resilient.

    What is a Supply Chain Disruption and Why Does it Happen?

    A supply chain is comprised of all entities involved in creating a product and delivering it to a customer. It starts with the raw goods and finishes when the end user receives it.

    For example, let’s say you decide to purchase a gold ring online. The first link in the supply chain is the raw materials, or the gold used to create the ring. The company mining probably sells the gold to a supplier. A manufacturer then takes it and turns it into a ring. The online retailer buys it, then sells it to you and ships it off.

    Five entities are involved in this very basic example. There’s usually more than one type of raw good involved and often more links in the supply chain. If any of those links face an issue that prevents that ring from being made or reaching you, it’s considered a supply chain disruption.

    Types of Supply Chain Disruptions

    There are lots of supply chain disruption examples in everyday life. A few are covered below.

    • Pandemics: Supply chain disruptions from COVID-19 impacted 94 percent of Fortune 1000 companies, per Accenture research. Although this is an extreme example, it happens more often than people think. For example, the Swine Flu and the Avian Flu caused similar issues.
    • Natural Disasters: Hurricanes, floods, fires, earthquakes, and other natural disasters can cause supply chain issues too. For example, the 2011 Great Tohoku Earthquake and Tsunami took out a power plant in Japan. Because the plant-powered a factory that made components used in 60 percent of vehicles, carmakers across the globe were forced to shut down for a period of time. Wildfires across the western United States cause similar chaos by creating a shortage of wood used for pallets.
    • Transportation Delays: Issues like the trucker shortage, inclement weather, and seasonality often cause supply chain disruptions too.
    • Price Fluctuations: Cost shifts can happen for a variety of reasons. For example, when fires impact wood availability for pallets, the cost to make them naturally rises. Some manufacturers have reported costs doubling almost overnight. As trucking companies have had to work harder to keep pros behind the wheel, transportation costs go up too. Most people became acutely aware of pricing fluctuations during the pandemic as well. The price of eggs, for example, skyrocketed by more than 30 percent. The cost of PPE, such as masks and gloves that medical professionals rely on, has risen exponentially.
    • Cyber Attacks: Sometimes hackers specifically target a company, such as when Colonial Pipeline was hit with a ransomware attack. The incident disrupted gas supplies and increased prices. Other times, the attack is broader. The SolarWinds hack is an example of this. Often referred to as one of the biggest cybersecurity breaches of the 21st century, the hackers involved exploited a vulnerability in Orion software created by SolarWinds and used by more than 30,000 organizations to manage their IT. Once the malicious code was installed on an Orion system, it could spread to the data and networks of the business’s customers and partners. In other words, it effortlessly spread across entire supply chains, including government agencies.

    How to Prepare for Possible Supply Chain Disruptions

    Disruptions can happen at any time, so it’s important for businesses to take a proactive approach to supply chain risk management. Supply chain risk management commonly emphasizes the process of mitigation, reflecting limitations, additional tasks, and audits that adversely impact the value, as well as the complexity and velocity of sourcing processes and operations.

    Strengthen Your Supplier Relationships

    If you have strong relationships with suppliers, they’ll do their best to look out for you when there are supply chain disruptions. Treat suppliers like they’re part of your team, communicate with them often, and always pay them on time.

    Build Up Your Inventory

    Try to keep enough inventory on hand so that you have some breathing room and time to pivot if you face supply shortages. Remember that tying up working capital in excess inventory can hinder business growth. Identify the sweet spot for your business that allows you to run lean without compromising your ability to fulfill orders or meet demand if there’s an issue.

    Supply Chain Planning System

    Supply chain planning systems typically include the following components: Sales and operations planning offer businesses the opportunity to make better decisions that are informed by key supply chain drivers, such as sales, production, inventory, and marketing. By adopting the tenets of modern supply chain planning systems and relying on data instead of predictions, businesses can help make their operations and supply chain more agile and resilient.

    Have a Customer Demand Management Strategy

    There may come a time when you need to shift how you’re operating. It’s best to think through potential solutions when you’re not under pressure and are more likely to catch any unintended consequences of your intended path.

    GM’s issues in the wake of the Japanese earthquake and tsunami are a prime example here. The company’s supply chain is massive and highly organized. Each component of a vehicle can take weeks or more to produce and needs to arrive on the assembly line at just the right time, as explained by MIT.

    The company became unable to produce heated seats because of supply chain disruptions related to its electronic control modules. As a result, some company insiders called for GM to stop ordering the seats, but Bill Hurles, executive director of Global Supply Chain, recognized that path would have unintended consequences.

    A shift away from heated seats would necessitate a shift away from leather seats, which heaters are commonly paired with. The company would then need to increase fabric seat orders, which could create its own set of issues. Furthermore, the lack of leather seats would impact the packages typically offered in vehicles, as higher-end models usually come with leather. Lastly, the company would still have leather seats and heated seats in various stages of preparedness scattered throughout its supply chain. Resolving the problem would be complicated.

    GM decided to stay the course. Despite the fact that moving away from heated seats seemed like an easy solution, it created far more problems than it solved.

    Explore various ways your business can manage customer demand if you’re in a similar situation, such as:

    • Substitution: Find ways to guide consumers to a product that isn’t impacted by the current supply chain issue, such as increasing the price of the affected item and lowering the price of a substitute item that isn’t.
    • Dilution or Stretching: See if there are ways to make your raw goods go further without impacting the quality and upsetting customers.
    • Triage: Know which products will receive priority treatment if you’re forced to decide which to produce or whom to serve.
    • Auction: Some companies switch to selling their products to whoever is willing to pay the most. Although this strategy can provide an immediate payout, it can also alienate loyal customers and damage the business in the long run.

    Identify Backup Suppliers and Diversify Your Supplier Base

    Work with a few different suppliers that come from different backgrounds. That way, if a regional or individual issue impacts one, you can bump up your orders with the others. Continue working with them and building up your relationships, so they’re more likely to help you out if you’re facing an issue.

    Conduct a Supply Chain Vulnerability Audit

    A key component of supply chain risk management is pinpointing potential issues in an audit or vulnerability assessment. This involves jotting down all of your raw materials and components, then making note of what controls or protections are in place for each. Then, use a four-point scale (very high, high, low, negligible) to assess the vulnerability of each item.

    When you know your biggest risks, develop a plan to minimize the risk or establish a backup plan to ensure you won’t be without the item if there are delays or shortages.

    How to Deal with a Supply Chain Disruption

    Although you can take steps to minimize the impact of a supply chain disruption, it’s not always possible to prevent issues altogether. However, these tips can help you bounce back quicker.

    Plan for Recovery

    Keep the long-term health of your business in mind as you navigate supply chain issues. How you handle the disruption will impact how your customers and suppliers feel about you afterward.

    Communicate with Customers

    At a bare minimum, customers who are already waiting on delivery need to know why it’s delayed, what you’re doing to address the issue, and when you anticipate a resolution. However, it’s better if you set the right expectations by communicating before someone places an order. Consider sending an email to your loyal clients or including information on your website.

    Evaluate the Impact on Cash Flow

    Supply chain disruptions can:

    Identify how the supply chain disruption impacts your cash flow and be prepared with a backup source of funding that can help you cover expenses if needed while you’re working things out.

    Assess Buyer Behavior

    Demand for certain products and services may shift while you’re working through your supply chain issues. Keep a pulse on what your customers want to see if there are opportunities to pivot away from products or services that have become difficult to produce.

    Boost Cash Flow During Supply Chain Disruptions with Invoice Factoring

    Invoice factoring is often used by companies that are experiencing rapid growth because it provides debt-free funding by accelerating payment on B2B invoices. However, it’s also an excellent option as a backup source of working capital because it’s flexible. When you factor and which invoices you factor is up to you. Plus, factoring can be tapped into quickly whenever the need arises, with the option to receive your advance as soon as the same day you submit your invoice. To learn more or get started, request a complimentary rate quote from Charter Capital.

  • Small Business Management: Weathering Economic Uncertainty Like a Pro

    Small Business Management: Weathering Economic Uncertainty Like a Pro

    Small Business Management: Weathering Economic Uncertainty Like a Pro

    Small business management is never easy but building a strong enterprise can seem impossible during times of economic uncertainty. Whether your business is presently struggling, or you want to future-proof it against common issues, this page will walk you through what to look for and how to fortify your business going forward.

    Common Financial Management Challenges Small Businesses Face During Times of Economic Uncertainty

    Before we begin, it’s important to have some background on the financial challenges small businesses often face in times of economic uncertainty. Even if you aren’t facing these challenges currently, being aware of them can help you plan for future uncertainties in your business.

    Budgeting

    Nearly two-thirds of small businesses don’t have an official documented budget under ordinary circumstances, according to Clutch. The figure jumps to nearly three-three quarters for businesses with between one and ten employees.

    During times of financial uncertainty, it becomes that much harder to create a budget and stick to it. Clients are typically slower to pay their invoices, vendors often start charging more, and customer spending can drop in non-essential industries.

    Even still, budget management and monitoring is one of the top four things successful businesses have in common, according to research by the Federal Reserve Bank of Chicago. You must create a budget. It’s ok if it needs to be adjusted as you go. Get the basics documented, so you’ll have a better idea of where you stand and where you want to be.

    Making Payroll

    More than two-thirds of workers live paycheck to paycheck, according to the American Payroll Association. If their paychecks were delivered a week late, around 35 percent say it would be somewhat difficult to meet their financial obligations, and 29 percent say it would be very difficult. It’s no surprise, then, that 44 percent of employees who are paid incorrectly will start looking for alternate employment, per Keka.

    Making payroll is one of the most important things you can do as an employer. The importance of this becomes even more apparent during difficult times such as economic downturns when employees are stretched thin, just like you are. Having cash set aside for payroll is one of the four commonalities successful businesses share, per the Federal Reserve Bank of Chicago’s research too.

    Staying Ahead of Expenses

    Overall, 60 percent of small business owners say cash flow has been a problem per Intuit. This ties back to cash flow and budgeting. If you don’t know what’s coming in or when it’s coming in, it’s difficult to make timely payments of your own.

    Controlling Debt

    The ability to repay debt has decreased for all businesses except very large ones, according to Deloitte research. Strapped for working capital, it is not uncommon for businesses to take out loans with unfavorable terms in an inflationary environment in order to get them through economic times of uncertainty. However, small business recovery tends to be slower. It’s common for small businesses to get caught in a debt trap, making interest-only payments and never getting ahead.

    This may be why a high level of unused credit balance is one of the four traits successful balances share, per the Federal Reserve Bank of Chicago’s research. It’s second only to having knowledge and experience with credit.

    Obtaining Financing

    Just 42 percent of businesses have their funding needs met, compared to 47 percent last year, according to the latest Small Business Credit Survey. The reasons for this are myriad. Denials are up, and even those who are approved still don’t receive the amount they need. Many are discouraged by these figures and don’t bother to apply, while the number of debt-averse business owners is climbing too.

    Tips for Managing Your Small Business Through Economic Uncertainty

    Next, let’s take a look at some additional ways you can help your business stay strong during times of economic uncertainty.

    Evaluate and Improve Your Cash Flow Management

    Eight in ten business failures can be tied to cash flow management issues, according to research presented by Entrepreneur. Some relate to common cash flow management mistakes, such as not actively requesting payment of receivables. Others are more about not seizing opportunities to improve cash flow, such as accelerating receivables and opting for leases over purchasing.

    Explore ways to reduce and slow your cash outflows while increasing and accelerating your cash inflows. Follow financial management best practices, such as creating a budget, and never put your greatest asset (your talented employees) at risk by missing payroll.

    Automate Processes Where You Can

    More than three-quarters of businesses that automate feel more comfortable responding to a crisis than their counterparts, according to Zapier research. Nearly a quarter of those using automation software were exceeding their pre-pandemic revenue by May 2021 too.

    The top benefits gained through automation include:

    • Greater Productivity
    • Enhanced Focus
    • Reduced Stress
    • Cost Savings

    Work with your team to identify tedious, repetitive tasks that each person handles. For example, you can automatically enter new leads and customers into your CRM based on data they provide in forms or at checkout. Emails can automatically be sent internally or externally after specific actions are taken or sent on a schedule. There is a myriad of payroll and billing tasks that can be automated too.

    Focus on Your Customers

    Happy customers are the lifeblood of your business.

    • More than two-thirds of customers are willing to pay more for products and services when the brand offers good customer experiences, according to HubSpot.
    • Nearly nine in ten customers are more likely to make another purchase after they’ve had a positive customer service experience per Salesforce.  
    • Increasing customer retention by just 5 percent can boost profit by 25 to 95 percent, according to Bain and Company.

    Use surveys to gauge client happiness and identify pain points, then address the issues you uncover. As satisfaction grows, your cash flow and profit will improve too.

    Investigate Financing Options

    Even if your business doesn’t need cash right now, you should always be prepared with a backup form of funding. Approval rates are low during times of economic uncertainty, and even those who get funding don’t usually receive everything they need.

    Explore all potential working capital sources, not just traditional options like small business loans and lines of credit.

    Invoice Factoring Can Save Time and Provide Immediate Cash Flow

    One alternative is invoice factoring. Instead of taking out a loan that you pay back with interest, factoring involves selling your unpaid B2B invoices to a third party, known as a factor or factoring company. You get most of the invoice’s value right away, then receive the remainder minus a nominal factoring fee when the client pays. There’s no debt to pay back because your client clears it when they pay their invoice. Most businesses qualify, including startups and those without strong credit.

    Accelerate Your Cash Flow with Charter Capital

    If you’d like to accelerate your cash flow through invoice factoring, connect with Charter Capital. With decades of experience and competitive rates, plus perks such as same-day funding and free collections services, Charter Capital can help your business weather uncertain economic times and come out stronger. Request a complimentary rate quote to learn more or get started.

  • Heavy Equipment Financing: A Beginner’s Guide to Getting Funding

    Heavy Equipment Financing: A Beginner’s Guide to Getting Funding

    Heavy equipment financing

    Need to make a large equipment purchase but not sure where to start or if you’ll even qualify? Heavy equipment financing can help you do just this, but there are many ways to approach it. We’ll walk you through some of the most common solutions and alternatives on this page so that you can make the right decision for your business.

    Leasing vs Financing for Heavy Equipment

    When you finance your heavy equipment, you own it. It’s yours until you decide you’re done with it. When you lease heavy equipment, it’s not yours. You’re borrowing it for the duration of your lease, though some leases offer the option to buy when the term is over.

    There are two main types of equipment leasing: capital and operating.

    • Capital Lease: Intended for long-term access to equipment.
    • Operating Lease: Intended for short-term access to equipment.

    Is Financing or Leasing Business Equipment Better?

    Financing is usually better if your company’s cash flow is strong, you plan to keep the equipment for an extended period, and the equipment will help you generate revenue.

    Leasing is generally better if you won’t need the equipment long or it will become obsolete quickly. It can be better if you’re short on cash or are not a strong borrower yet too, though there are alternative funding methods we’ll cover at the end that can help if these latter concerns are holding you back.

    What You Need to Qualify for Heavy Equipment Financing

    Finding traditional equipment funding for a small business isn’t always easy. Borrowers usually need to meet specific criteria for credit scores, cash flow, and time in business. Collateral may come into play as well.

    Time in Business Requirements

    Companies usually need to be in business for at least one year to qualify for traditional equipment funding.

    Credit Score Requirements

    Most financial institutions offering heavy equipment financing require a minimum credit score of 600, though some start at around 550.

    Cash Flow Requirements

    Most businesses will need $100,000 in annual revenue to qualify for an equipment loan, though some lenders start at around $50,000. The amount will vary depending on the total amount of funds requested too.

    Down Payment Requirements

    Most equipment loans require the borrower to put down 20 percent of the initial cost. For example, if you’re purchasing a $100,000 truck, you’ll need to have $20,000 for your down payment. Well-qualified borrowers can sometimes receive a bit more.

    Do You Need Collateral?

    One of the primary things that distinguish heavy equipment loans from traditional loans is that equipment loans usually leverage the equipment being purchased as collateral. It secures the loan and offers the lender a measure of assurance that they’ll be able to recoup their money if the borrower doesn’t pay. Sometimes lenders will have borrowers sign a personal guarantee and leverage other business or personal assets as collateral as well. It’s usually easier to qualify for an equipment loan than it is to qualify for a traditional non-specific business loan for these reasons.

    Can You Get Heavy Equipment Financing if You Have Bad Credit?

    Again, the minimum credit score required for an equipment loan is usually 600. This is considered a “fair credit score,” according to Experian. “Poor” credit is a score of 579 or lower. So, although it’s technically possible to get heavy equipment financing with bad credit, it’s unlikely. You also won’t get good terms like you might if you have a score of 740 or more, which is “very good” credit, or 800 or more, which is “exceptional” credit. If you fall into this bracket, you’ll likely want to explore the non-traditional options covered at the end.

    Costs and Terms of Heavy Equipment Financing

    At this point, you should have a good idea of whether you’ll qualify for heavy equipment financing. Let’s go over what you can expect in terms of repayment and costs.

    What Are the Repayment Terms?

    Equipment loans are generally term loans, meaning you’ll repay the principal, interest, and fees in installments over a set period. Anywhere from one to five years is common, depending on the amount borrowed and your qualifications, though some offer up to ten-year repayment terms.

    How Much Can You Finance?

    Heavy equipment loans are designed to finance the total cost of equipment minus your down payment, so some will offer loans well into the millions. It’s similar to how a car loan works. If you’re well-qualified, you can take out a loan that covers all but your down payment for just about any type of car, whether it’s a $5,000 budget car or a $50,000 sports car. Your down payment addresses the immediate depreciation, so if you default on the loan, the loan company can resell the car and recoup any losses.

    It becomes a little trickier when your financing company doesn’t understand the value of what you’re purchasing. For example, you may know your “new car” is worth $50,000 because it’s electric, but if the lender you’re working with only understands gas-fueled cars, it may argue that your vehicle is only worth $40,000 and then lower the amount they’ll finance. It’s usually best to work with a lender who specializes in your industry because of this. For example, if you’re in the transportation industry and want to purchase new trailers, you want to work with a transportation lender who can accurately value your trailers. If you’re in manufacturing, you want to work with someone who understands what’s involved in retooling your machines.

    What is the Interest Rate on Heavy Equipment Loans?

    Anywhere from about five to 30 percent interest is common with equipment loans. Loan fees, such as origination, underwriting, and packaging, will also be applied to the balance.

    How Fast Can You Get Approved and Paid with Heavy Equipment Financing?

    While it’s technically possible to be approved and funded within a matter of days, many loans and lenders have processes that can drag out for weeks or months.

    What Do You Need to Apply?

    In addition to meeting the minimum qualifications as outlined above and being comfortable with the repayment terms, you should be prepared to provide prospective lenders with common business documents, including:

    • An invoice for the equipment.
    • Up to three months of your bank statements to demonstrate adequate cash flow.
    • One to three years of tax statements to prove your revenue.
    • Financial documents like profit and loss statements to show you can repay the loan.
    • Additional documents such as business licenses.

    Alternatives to Heavy Equipment Financing

    If traditional heavy equipment financing doesn’t work for you, one of the alternatives below likely will.

    SBA CDC/504 Loan

    The Small Business Administration (SBA) offers 504 loans through certified development companies (CDCs) or community-based partners that are regulated and certified by the SBA. Qualified businesses can receive up to $5 million. In these cases, the CDC finances up to 40 percent of the loan, and the SBA backs a portion of this. Ten percent comes from the borrower, and the remaining 50 percent comes from a third-party lender like a bank.

    Businesses must have a net worth of less than $15 million and an average net income of less than $5 million over the past two years. Ten and 20-year repayment terms are available. Interest is generally lower than bank rates, though it usually takes five to eight weeks to get funded. It’s also harder to get an SBA loan than it is to get a general equipment loan, as companies are usually required to be in business for at least two years, and the minimum credit score is 680.

    Term Loans

    An equipment loan is a type of term loan, though the broad term encompasses unsecured loans and loans that use other assets as collateral. Rates vary depending on the lender and what you bring to the table but typically range from six to 25 percent plus interest and fees. Some offer variable interest rates too.

    An equipment loan may be easier to qualify for than a general term loan, though the term loan may be more ideal if you intend to use some of the funds on things other than your equipment.

    Business Line of Credit

    A small business line of credit can occasionally work for equipment too. Unlike most of the options here, there isn’t necessarily a definitive end date for payments. Instead, it works like a credit card. If you draw from the account and then pay the money back, the funds become available to draw from again. Lines of credit usually cap out at around $100,000. The APR may be fixed or variable and can range from seven to more than 35 percent.

    Qualifying for a business line of credit is similar to qualifying for a term loan, though lenders often look for additional signs of financial security and/or collateral.

    Invoice Factoring

    Invoice factoring is a completely different way to address heavy equipment financing. Instead of borrowing the money needed for your business equipment, you’ll sell your unpaid B2B invoices to a third party known as a factor or factoring company. The factor provides you with upfront payment for most of the invoice’s value, then collects payment from your customer. When your customer pays, the factor remits any remaining funds owed to your business, minus a nominal factoring fee.

    There’s no debt to pay back because the customer takes care of the balance when they pay their invoice. Therefore, your credit is less of a concern with factoring, too, as the customer is the one who ultimately pays the balance.

    The amount available will vary for this reason as well. Your factor will run a credit check and determine how much the customer can reasonably pay. For example, let’s say you serve large oil companies that are fiscally strong but take months to pay their invoices. You may be able to factor a single invoice that covers your full equipment purchase. On the other hand, maybe you own and operate a trucking company. Your clients are smaller, and each freight bill is only worth a few thousand dollars. You may want to factor several invoices to fund your equipment purchase. A good freight factoring or oil and gas services factoring company will work with you to find the right funding for your needs.

    Get a Heavy Equipment Funding Quote from Charter Capital

    As a leading factoring company with decades of experience, Charter Capital helps businesses in transportation, oil and gas services, manufacturing, and more address their equipment funding needs every day. Our competitive rates, flexible and fast funding, and personalized service make managing heavy equipment purchases easy. To learn more or get started, request a complimentary rate quote.

  • 7 Cash Flow Management Mistakes Businesses Should Avoid

    7 Cash Flow Management Mistakes Businesses Should Avoid

    7 Cash Flow Management Mistakes Businesses Should Avoid

    Cash flow management mistakes can throttle business growth. They’re also incredibly easy to make and can go undetected until serious issues arise. They’re one of the reasons why 90 percent of small businesses sought emergency funding during the pandemic, per the Federal Reserve Banks Small Business Credit Survey, and why even lesser cash flow problems can leave a seemingly successful business without working capital to cover payroll or purchase inventory under ordinary circumstances too.

    The goal of cash flow management is to get you in the “green,” also known as positive cash flow, where you have more money coming in than going out. Before you can work towards a positive cash flow, you need to know how much you need to earn to simply break even.

    However, you can avoid most common cash flow mistakes, so your business is prepared for unexpected expenses and has the cash it needs to grow. In this article, we’ll look at seven cash flow issues routinely seen in midsize and small businesses so that you can safeguard yours against them.

    1. Paying Too Much Attention to Profit

    While profit is a key indicator of financial strength, it’s not everything. “It is quite possible for a company to report profits but go out of business,” explains Aretha Boex of the Nebraska Business Development Center. “It is also possible for a company to be profitable and not be able to grow, secure financing, or attract investors.” With that in mind, it’s important to monitor your profit margin and business cash flow equally.

    2. Not Actively Requesting Payment of Receivables

    Sending out invoices has become such a routine activity for small-business owners that many don’t realize they’re extending credit, let alone verify the creditworthiness of customers before doing it. Start thinking of your accounts receivable as a short-term loan. Set payment terms that benefit your business. If you’re currently waiting 30, 60, or 90 days, reduce the span to days or weeks to accelerate your inflows. To speed payments further, consider adding penalties for late-payments and discounts for early payment.

    3. Not Monitoring Cash Flow Properly

    It’s hard to have effective cash flow management if you do not measure your inflows and outflows to begin with. So, if you aren’t currently using a cash flow statement to monitor your cash outflow and inflow, start now.

    Although one of your most impactful financial statements, a cash flow worksheet is easy to create. Excel even offers a free basic template to get you started, but you may want to select specialized software that can tackle your cash flow forecast as well. This is a helpful tool, as it can help you visualize how much cash you’ll have on hand at any given point in time so that you can make the most of it.

    4. Failure to Monitor Inventory Levels

    While many business owners worry about running out of inventory or not having enough to take on a large order, having an oversupply is just as worrisome. Items collecting dust on the shelf represent money that could otherwise be generating more revenue for your business either through growth activities or investments.

    Although the “right amount” of inventory to keep on hand will vary by business, industry, season, how long it takes to procure materials and other factors, you’ll generally get a feel based on historical data and regular tracking.

    5. Paying Certain Liabilities Too Early

    It’s important to pay your vendors in a timely manner for the sake of maintaining good relationships, and it’s good practice to cover general operating expenses as your terms dictate to avoid late payment penalties. Because of this, many business owners get in the habit of pushing out all upcoming payments as cash flows in. However, this creates a problem similar to inventory overstock if payments are made too early. In addition, the money you’re pushing out might be better spent elsewhere or could generate interest if invested. 

    6. Not Preparing for Slow Periods

    Seasonality impacts most businesses but manifests itself in different ways. For example, retail typically peaks in the fourth quarter. Logistics and transportation companies that support the industry often ramp up around the same time, though international shippers often see increases starting during the summer. Much focus is placed on the peak periods, but the slow periods are often overlooked.

    It’s important to remember that the income you make during a peak season needs to carry you through your slow season. You’ll need to have a surplus available to help you ramp up when the busy season kicks in again too. Effective cash flow management is paramount here. Rather than spending, you may want to find ways to put your money to work for you while ensuring it can be tapped into as employees need to be paid and expenses accrue during the slow period. 

    7.  Improperly Managing Taxes

    More than 90 percent of business owners overpay their taxes, according to Forbes research. For this reason alone, it makes sense to work with a tax professional. However, taxes are likely one of your most significant expenses and a significant source of stress, too, so even if you’re certain you’re one of the ten percent in the clear, it may be worth getting some help regardless. A specialist will help ensure your business is set up in a way that minimizes your tax liabilities and keeps you on track for deadlines throughout the year. Plus, they’ll have a wealth of business tax tips that are specific to your company so that you can keep more money in your pocket.

    Improve Your Cash Flow with Invoice Factoring from Charter Capital

    Even if you avoid all the common cash flow management mistakes, you may still find yourself short on cash from time to time. Invoice factoring can help in these situations by offering you same-day payment on your B2B receivables. Then, you can spend the cash in whatever way makes the most sense for your business while Charter Capital waits on payment from the client. Want to learn more or find out your rate? Get started with a free quote.

  • 10 Common Myths & Misconceptions About Invoice Factoring

    10 Common Myths & Misconceptions About Invoice Factoring

    Common Myths and Misconceptions About Invoice Factoring

    “Beware of the half-truth,” as the saying goes. “You may have gotten hold of the wrong half.” While the quote is certainly appropriate in many situations, it hits home a common issue experienced by small businesses looking for business funding. Many “facts” you read are half-truths, and some don’t have a grain of truth to them at all. So, if you’ve been looking for business funding, no doubt you’ve found more than your fair share of “half-truths” about getting funded from invoice factoring as well. Below, we’ll break down ten of the most common myths and misconceptions about invoice factoring, so you can make an informed decision about what’s right for your business.

    Myth 1: You can only qualify if you factor all your unpaid invoices.

    Many business owners shy away from factoring because they’ve heard that they need to factor all their invoices or all invoices for a specific client. There’s no truth to it at all.

    Truth: Each invoice factoring provider is different, but most offer flexible terms.

    Generally speaking, factoring companies don’t tie you down. You can factor a single invoice and then never factor again, factor all the time, or anything in between. 

    Myth 2: You have to pay fees upfront before factoring your invoices.

    If you’re facing a cash flow shortfall, paying upfront fees may be totally out of the question and prevent you from seeking funding altogether.

    Truth: The fee is covered when your customer  pays their invoice.

    When you work with an experienced factoring company that’s dedicated to service like Charter Capital is, you don’t pay any upfront fees. Instead, you receive most of the invoice’s value as an advance. A nominal fee for the service is taken when your customer pays its invoice, and the remaining portion is sent to you. That means you’re never out-of-pocket anything under a typical arrangement.

    Myth 3: Factoring companies delay the collection process to maximize their fee income.

    Think of it this way: the factoring company only thrives when your business is successful. The more you can put into your business and the more you grow, the more they stand to make by retaining you as a client. It’s in the factoring company’s best interest to minimize collection delays and keep you well funded.

    Truth: Factoring companies accelerate payments.

    Oftentimes, factoring companies go above and beyond to accelerate payments by making it easy for your clients to pay and helping you manage your back-office processes more efficiently.

    Myth 4: Using an accounts receivable financing or factoring company is more expensive than traditional bank financing.

    True, factoring companies may cost more than conventional bank financing. However, funding from invoice factoring is designed to give you much greater financial leverage than you could ever gain from a conventional banking relationship.  The amount you pay for invoice factoring is typically based on the level of service you require from the factoring company in order to meet your business needs.

    Truth: Factoring is an affordable source of business funding.

    At Charter Capital, some of our factoring rates are as low as one percent. However, if cost is your primary concern, it’s best to start with a complimentary rate quote.

    Myth 5: Customers might leave if they see you partner with a factoring company.

    Small businesses are built on relationships, so, understandably, many business owners would worry about perception. Thankfully, that’s rarely a concern with factoring. Particularly in this day and age in which your business customers are accustomed to third parties like factoring companies performing treasury management services for their vendors, like you.

    Truth: Customer invoices are managed much the same way you would with a bent on helping you provide better customer service.

    Streamlined billing and more generous payment terms to your customers are seen as a benefit by customers. Moreover, businesses that leverage factoring are able to offer more flexible payment terms and can often take on more work, which leads to better service overall.

    Myth 6: I won’t qualify for factoring because of my credit history.

    Most forms of business lending have stringent requirements related to your credit history, time in business, and cash flow. Factoring is different.

    Truth: The creditworthiness of the business paying the invoice is the primary consideration. Most business owners qualify.

    When you work with a factoring company, they’ll look into the creditworthiness of any customers whose invoices you wish to factor and then determine if that business is creditworthy and how much credit can be reasonably extended.

    Myth 7:  Factoring invoices means you lose control of your company.

    Given the way approval works, business owners sometimes take a leap and assume that factoring means they can’t choose who to work with or which jobs to accept.

    Truth: Invoice financing can give you more control over your company by helping you stabilize your cash flow.

    For argument’s sake, let’s say your factoring company tells you that one of your clients doesn’t have strong enough credit for their invoices to be factored. You can still accept work or orders from them. You simply might not be able to  factor those particular invoices. But, that would mean you’re extending credit to a high-risk customer—someone you know may not be able to pay. Most business owners wouldn’t do that unless under extenuating circumstances.  Some factoring companies like Charter Capital will go out of their way to understand the extenuating circumstances and arrange to accommodate your funding needs accordingly.

    At the same time, factoring stabilizes your income. You’re less likely to have customers who can’t pay, and your income becomes far more predictable. That leads to easier budgeting and provides an edge when you’re strategizing your next business move.

    Myth 8: Receivables factoring is only for struggling businesses.

    One of the biggest benefits to factoring is that it provides business funding when a business would otherwise be denied a bank loan. You can qualify with bad credit, a short credit history, or even if your existing debts or excessive growth prevent you from qualifying for the loan you need. That sometimes leads people to believe that only companies in financial distress use factoring.

    Industries with lengthy payment cycles, like oil and gas, often turn to factoring to maintain steady cash flow. Oilfield factoring enables oil and gas service companies to convert their unpaid invoices into immediate cash. This not only helps them cover operational expenses but also positions them for growth in a competitive market.

    Truth: New companies and SMEs often use invoice factoring too.

    According to the annual Small Business Credit Survey, a whopping 30 percent of businesses with financial needs don’t even bother applying for loans because they’re debt-averse, don’t think they’ll qualify, or for other reasons. Of those who apply and qualify, only about half receive the amount of funding they need. In addition, high-interest rates, unfavorable repayment terms, and insufficient funding amounts cause 20 percent to walk away from loans on their own.

    While it may be true that it’s notoriously difficult to get a bank loan, these figures signify that about half of all financially sound companies still can’t get the funding they need—cash for growth, expansion, and everyday expenses.

    Myth 9: It can take too long to see the benefits of factoring.

    People who don’t understand how factoring works or how to leverage it properly sometimes think it’s a lengthy process because the business factoring needs to be approved, and the company paying the invoice needs a credit check before cash is disbursed. 

    Truth: Factoring is designed to help with short-term cash flow issues.

    First, it’s important to note that the steps outlined above—approval, credit check, and payment—all happen very quickly when you work with an experienced factoring company and you have basic business documents ready. From start to finish, everything can be completed in a couple of days. When you work with a company like Charter Capital, you can get same day funding on the day you submit your invoice too. None of this is possible with traditional bank loans.

    Secondly, factoring is designed to help with short-term cash flow issues. It’s a cash flow accelerant that reduces the time between completing work or delivering goods and getting paid.

    Myth 10: Other business lines of credit or traditional bank loans are better.

    Business lines of credit and bank loans are very different from factoring, so the benefits and use cases will be different too. Bank loan rates will often be lower, but traditional banks leave a major funding gap that factoring fills. Plus, factoring helps in ways that banks can’t or don’t.

    Truth: Factoring is a better solution for many small and midsize businesses.

    Factoring may be the better solution for you if you:

    • Need fast approval.
    • Want same-day cash.
    • Need flexibility
    • Won’t qualify for a bank loan.
    • Are a fast growing company and need greater financial leverage/ funding than a traditional lender can approve.
    • Don’t want to take on debt.
    • Appreciate a streamlined back-office solution.

    Work with the Best Factoring Company: Charter Capital

    With decades in the industry, fast approval, and same-day funding, Charter Capital can get your business the cash it needs through invoice factoring. Request a free rate quote now.

  • How a Cash Conversion Cycle Works & Calculating the CCC

    How a Cash Conversion Cycle Works & Calculating the CCC

    How a Cash Conversion Cycle Works & Calculating the CCC

    As a small-business owner, you’re probably keenly aware of the cash conversion cycle (CCC), even if it’s not something you’re intentionally measuring or monitoring. It’s a measure of business health and, when you’re nailing it, you’ve generally got solid cash flows and plenty of money in the bank. You’re not worried about how you’ll pay your vendors or payroll. When your CCC isn’t working in your favor, money is tight, and no amount of business growth can fix it. You’ll always be under pressure to find hidden cash and struggling to make ends meet.

    But, what is it about CCC that makes it so powerful, and how can you make it work in your favor? We’ll give you the cash conversion cycle formula, insights on what your numbers mean, and ways to improve your situation below.

    What is the Cash Conversion Cycle & How Can it Help Me?

    Also known as a net operating cycle, your CCC is calculated using several activity ratios, including those related to accounts payable, accounts receivable, and inventory turnover. You can think of CCC as the period between making an investment, usually through the purchase of inventory, and getting the return on your investment, usually through final payment from a customer after delivering a product or service. The shorter the span, the faster you’re generating cash. The longer the span, the slower you’re generating cash. Naturally, you want the length of time to be as short as possible to maximize cash on hand, but the data your CCC provides you with is far more telling than that. Although it should be incorporated with other metrics (such as return on assets (ROA) and return on equity (ROE) ), the CCC can provide valuable insights by comparing close industry competitors.

    Understanding the Impact of a Negative Cash Conversion Cycle

    A negative CCC occurs when a company collects payments from its customers before it has to pay its suppliers. This scenario is highly advantageous because it means the company is effectively using its customers’ money to fund its operations. Companies with a negative CCC, like Amazon, optimize their cash flow by turning their inventory into cash before paying for it. This process leads to a shorter cash conversion cycle, enhances overall cash management, and allows for better cash flow from sales.

    A negative CCC indicates that a company is efficiently managing its working capital, which is a crucial working capital metric. This lower CCC means that the company can reinvest the cash generated back into its operations or other profitable ventures. By continuously cycling through inventory and collecting cash faster than they need to pay suppliers, these companies maintain positive cash flow, which is essential for growth and stability. Achieving a negative CCC helps companies avoid cash being tied up unnecessarily, thereby improving their cash management and providing a competitive edge in their respective industries.

    The CCC Helps Measure the Health of Your Business

    A typical cycle may look something like this:

    Order and pay for raw materials >> Convert materials into a sellable product >> Sell the product >> Collect from the customer.

    As you know, the longer any of those stages takes, the tighter things get. You may not be able to order or pay for more raw materials because you’re still stuck waiting on payment from the customer.

    That’s the vicious cycle most small businesses and startups face. It doesn’t matter whether you’re investing $50,000 in the first step or a million. You’re always going to be stuck in limbo to the same degree if you don’t find a way to get your raw materials without paying for them right away or get your customers to pay faster. That’s why growth won’t fix a cash cycle problem and why CCC is a key indicator of your overall health.

    It’s worth noting, however, that looking at CCC by itself for a single period doesn’t give you the whole picture. You’ll want to see how your CCC is trending over time and use additional metrics to gauge your overall success too.

    You Can Evaluate Management Strength with the CCC

    Many metrics, and even intangible factors, can be used to gauge the strength of a company’s management. The CCC is one of the top options. As you can see from the earlier example, a company that isn’t converting an investment into cash swiftly is always going to need outside money to grow or bridge gaps. However, when management finds ways to speed up the CCC, cash on hand builds.

    You Can Compare Your Business Against Competitors with CCC

    When investors are choosing between two similar companies or lenders are on the fence, they’ll usually look at the CCC as well. Simply put, the company that turns an investment into cash faster will go places long before the sluggish one does. 

    Understanding the Different Elements of the CCC Calculation

    Now that you have a better background in how the CCC works and what it means to your business, let’s go over how to calculate your CCC. You’ll need access to company figures over a period of time, such as a quarter or year.

    Figures to gather include:

    • Revenue
    • Beginning Inventory Value
    • Inventory Purchases
    • Ending Inventory Value
    • Beginning Accounts Payable Value
    • Ending Accounts Payable Value
    • Beginning Accounts Receivable Value
    • Ending Accounts Receivable Value

    With these in hand, you’ll be able to work out the three elements of your CCC.

    Sample Figures

    As we break down CCC calculations in the coming sections, we’ll be working with the following sample figures of a mock company’s most recent year.

    • Revenue: $75,000,000
    • Beginning Inventory Value: $3,000,000
    • Inventory Purchases: $40,000,000
    • Ending Inventory Value: $8,000,000
    • Beginning Accounts Payable Value: $7,000,000
    • Ending Accounts Payable Value: $9,000,000
    • Beginning Accounts Receivable Value: $7,000,000
    • Ending Accounts Receivable Value: $10,000,000

    Days Inventory Outstanding (DIO)

    The first part of the CCC calculation is DIO—the average length of time it takes you to convert inventory into goods and then sell them.

    Formulas you’ll need to include:

    Average Inventory: (Beginning Inventory + Ending Inventory) / 2

    Cost of Goods Sold: Beginning Inventory + Purchases – Ending Inventory

    DIO: (Average Inventory / Cost of Goods Sold) x Number of Days in Period

    Sample DIO Calculation

    Average Inventory: ($3,000,000 + $8,000,000) / 2 = $5,500,500

    Cost of Goods Sold: $3,000,000 + $40,000,000 – $8,000,000 = $35,000,000

    DIO: ($5,500,500 / $35,000,000) x 365 = 57 days

    In this example, it takes our mock company 57 days to turn their inventory into goods and sell them.

    Days Sales Outstanding (DSO)

    The second part of the CCC calculation is DSO—the average length of time it takes to collect.

    Formulas you’ll need to include:

    Average Accounts Receivable: (Beginning Accounts Receivable + Ending Accounts Receivable) / 2

    Revenue per Day: Revenue / Number of Days in Period

    DSO: Average Accounts Receivable / Revenue Per Day

    Sample DSO Calculation

    Average Accounts Receivable: ($7,000,000 + $10,000,000) / 2 = $8,500,000

    Revenue per Day: $75,000,000 / 365 = $205,479

    DSO: ($8,500,000 / $205,479) = 41 days

    In this example, it takes our mock company an average of 41 days to collect.

    Days Payable Outstanding (DPO)

    The third and final part of the CCC calculation is DPO—the average length of time it takes you to pay your accounts payable (pay your vendors after you’ve purchased inventory).

    Formulas you’ll need to include:

    Average Accounts Payable: (Beginning Accounts Payable + Ending Accounts Payable) / 2

    Cost of Goods Sold: Beginning Inventory + Purchases – Ending Inventory

    DPO: (Average Accounts Payable / Cost of Goods Sold) x Days in Period

    Note: While we’re working with the above in this example, an alternate formula you can try is: Days Payable Outstanding = Average Accounts Payable / (Cost of Sales / Number of Days in Accounting Period)

    Sample DPO Calculation

    Average Accounts Payable: ($7,000,000 + $9,000,000) / 2 = $8,000,000

    Cost of Goods Sold: $3,000,000 + $40,000,000 – $8,000,000 = $35,000,000

    DPO: ($8,000,000 / $35,000,000) x 365 = 83 days

    In this example, our mock company waits 83 days to pay its bills.  

    The Cash Conversion Cycle Formula

    Now we’re ready to calculate the cash conversion cycle.

    DIO + DSO – DPO = Cash Conversion Cycle

    Because DIO and DSO relate to a company’s cash inflows, they’re reflected as additions, while DPO, the only cash outflow, is subtracted.

    Sample DPO Calculation

    Going back to our earlier calculations, our mock company’s CCC equation is:

    57 + 41 – 83 = 15

    It takes this company 15 days from the time it purchases inventory to collect on it.

    What is a Good Cash Conversion Cycle? Industry Benchmarks and Standards

    A good cash conversion cycle varies by industry, but generally, a shorter CCC is preferred as it indicates efficient cash flow management. The average number of days it takes a company to convert its inventory into cash, collect cash from customers, and pay its suppliers defines the CCC. In retail, giants like Walmart maintain a low cash conversion cycle, sometimes just a few days, while manufacturing industries may have longer CCCs due to extended production times.

    A good cash conversion cycle means a company can quickly turn its resources into cash flow, thereby optimizing its working capital. Industry benchmarks are useful to track the CCC and set realistic goals for improvement. For instance, a CCC of 30 days might be considered good in some sectors, whereas in fast-moving consumer goods, even a shorter cash conversion cycle is expected. Companies should aim to reduce their CCC by streamlining processes, managing inventory efficiently, and improving cash collection from customers. These improvements also enable better financial forecasting for cash flow planning and operational decisions, especially when paired with a consistently monitored CCC. This approach ensures that cash is not tied up longer than necessary, supporting better overall financial health and sustainability.

    “Good” vs. “Bad” CCC

    Over the past decade, S&P 1500 company CCC averages have climbed from about 64 to 71 days just before the pandemic per JP Morgan. Meanwhile, Goliaths like Walmart have CCCs under ten days, and Amazon manages to pull off a negative cash conversion cycle, according to Forbes. Each industry, and each company, will have unique benchmarks. Your company may not be able to whittle down your CCC to match Walmart or Amazon, but you should be actively working to improve yours and keep it as reasonably low as possible.

    How to Improve Your Cash Conversion Cycle

    Need to make a change? There are three high-impact areas you can focus on if you want to reduce your CCC.

    Using the Cash Conversion Cycle to Improve Working Capital Management

    Using the cash conversion cycle effectively can significantly enhance working capital management. The CCC formula, which calculates the number of days it takes a company to convert its investment in inventory back into cash, provides valuable insights. By analyzing the CCC, businesses can identify bottlenecks in their operations and take steps to shorten the cycle, leading to improved cash flow.

    To improve the cash conversion cycle, companies can focus on three key areas: reducing inventory days, speeding up receivables into cash, and extending payable days. Reducing inventory days means keeping less stock on hand and turning over products more quickly. Enhancing cash collection practices ensures that sales are converted into cash faster. Finally, negotiating longer payment terms with suppliers can help retain cash for a more extended period. Each of these strategies helps to lower the CCC, providing more positive cash flow for the company. Ultimately, managing its working capital efficiently through a well-optimized CCC supports the company’s financial stability and growth.

    Reduce Accounts Payable

    Payables can be addressed in two big ways. First, eliminate any account you don’t genuinely need and cut back expenses as much as possible. Secondly, connect with the suppliers you plan to keep working with and see if they’re willing to extend credit or lengthen your terms on any outstanding payments. The more days payables sit, the more you can put your money to work for you.

    Boost Accounts Receivable

    Explore ways to get your customers to pay faster. Changing your invoicing terms, offering rewards for early payment or pre-payment on an account receivable, and factoring your unpaid B2B invoices can help.

    Reduce Inventory

    Keeping inventory days on end without use is a major CCC killer. You probably won’t get what your inventory is worth through liquidation, so it’s better to hold off on restocking until you absolutely need to order and focus on keeping minimal inventory on hand instead.

    Improve Your CCC with Factoring

    If your business needs to speed up payments and free working capital, you can sell your unpaid B2B invoices to a factoring company and get cash in hand in as little as a day. Get started with a complimentary quote from Charter Capital.

  • How to Finance an IRS Business Lien by Factoring

    How to Finance an IRS Business Lien by Factoring

    Finance an IRS Business Lien by Factoring

    Already have an IRS business lien or worried the government will file one? Often the result of unpaid payroll taxes or other tax issues, liens can stall business growth and make it much harder to pay debts no matter how diligent or dedicated you are. We’ll break down what business tax liens are, why they happen, and how invoice factoring can help below.

    What is a Business Tax Lien?

    When the government determines that a business taxpayer owes and has concerns it won’t pay, one of the tools in its arsenal is to have a lien placed on the business and its assets.

    If you’re a property owner with a mortgage, you probably already have a lien against your property. In these situations, your mortgage company will file a lien when they fund your purchase. The lien indicates the bank or lender is prioritized over other creditors where the property is concerned and grants it certain rights. For example, the bank gets the first claim on funds when you sell your home. The lien also allows the bank to act if you don’t make good on your payments, which can include seizing the property after certain processes are followed.

    An IRS business lien works similarly. It’s the IRS’s way of saying the agency is prioritized over other creditors where your business is concerned and grants it certain legal rights. However, it’s not limited to just the business property. It covers all the company’s assets from the equipment through accounts receivables.

    A federal tax lien is a legal claim that attaches to your business’s property, including any real or personal property, and becomes a matter of public record, which can severely damage your business credit and limit your ability to get new credit or sell the business.

    When Does the IRS File a Business Lien?

    The IRS does not generally file a lien right away, even with delinquent taxes. The agency has a process it follows that involves trying to work with you and get you on a payment plan before moving forward with a lien. Your best opportunity to correct the problem is during this window before a lien is placed. However, if you don’t comply or can’t meet the agency’s demands, and the IRS notifies you that a lien is being filed, you still have options.

    Once the IRS files a public notice of lien, the lien attaches to all current and future business assets. If you’ve already paid or resolved the tax debt, you may be able to request a lien release using Form 12277.

    How Does a Tax Lien Affect Your Credit?

    On one hand, a lien means you can’t readily sell business assets. Unless specific steps are taken, the government’s claim to an asset remains even after it’s sold. This means that the government can still seize the asset regardless of who possesses it, even though the other party is not responsible for the debt.

    This alone excludes you from asset-based lending options. Your receivables are considered assets, and the government is first in line for them. They can’t be used as collateral because the IRS would get them first.  

    Additionally, these types of liens raise red flags that other liens, like the one on your home, don’t. They signify financial distress. So, you probably won’t qualify for traditional bank loans either. It’s too risky for the finance company as it will have no recourse if you default because, again, the IRS comes first.

    It’s also worth noting that IRS liens may stay in place even if the business files bankruptcy, so small business owners often prioritize paying the agency when push comes to shove. If a lender is willing to extend credit despite this, the fees charged are likely to be much higher than normal to compensate for the additional risk.

    How Factoring Can Solve Business Tax Problems

    Tax professionals can help you strategize and negotiate with the IRS, so it’s a good idea to consult with a specialist if you’re struggling. However, one solution they routinely recommend is factoring.

    Think of invoice factoring like a cash advance on your unpaid B2B invoices or a form of receivable financing. It eliminates the wait for payment and gives you a quick injection of working capital. With that in mind, factoring can help you during the window before a lien is filed and assist you after too.

    For example, let’s say the IRS sends you a notice of federal tax lien—a final notice explaining that you have ten days to pay off your balance or get it below $25,000 or it intends to file a lien. You’d love to, but your customers aren’t going to pay you for at least 30 days, and there’s no way you’re getting a traditional bank loan within ten days. You simply go to a factoring company and request an advance, then pay the IRS immediately. You’ve now avoided the lien entirely and are free to move forward.

    Or, let’s say the IRS has already filed a lien, and your business is struggling. You’ve got payments to make to the agency and overhead to cover. You’re working as hard as you can, but cash flow is sluggish. At this stage, a factoring company can’t just jump in because the IRS now has first place on your customer invoices. However, IRS may consider subordination. Suppose you can demonstrate that the lien is damaging your ability to repay and demonstrate how factoring will help. In that case, the IRS may agree to take second place on your receivables and allow the factoring company to come in first place. Sometimes, the factoring company can even make payments directly to the IRS, alleviating any concerns it may have about non-payment. With the cash advances you receive, you can pay the IRS and level up your business by adding in more staff, purchasing materials and equipment, or accepting more work, so you can get your tax issues taken care of even faster and have a healthier business in the long run.

    It’s also worth noting that the approval process for factoring is fast and easy compared to business loans. Even if your credit history isn’t great because of IRS issues or payment history, you can still qualify because factoring companies are more concerned with your customer’s ability to pay their invoice than your credit score.

    What is the Invoice Factoring Process?

    Factoring is simple. You simply choose which B2B invoices you’d like advances on and submit them to the factoring company. The factoring company then provides immediate payment for a portion of the invoiced amount—usually 80 to 90 percent of the invoice’s value (even higher for some industries) —and then waits for your customer to pay. When the final payment comes in, the factoring company sends you the remaining amount, minus a nominal fee for the service.

    What Kind of Industries Benefit Most from Using a Factoring Company?

    Factoring works for all kinds of businesses in the B2B sector. Businesses that leverage it most tend to be those with lengthier invoicing terms, those with seasonal shifts or other issues that contribute to cash flow problems, and those with significant expenses before completing an order or work that need to be covered to keep generating revenue. For businesses managing tax liabilities or dealing with financial obligations like IRS liens, factoring can offer a clear path to maintaining operations while reducing the impact of money owed.

    Trucking & Freight Services

    Factoring is a favorite for the trucking industry because trucking companies typically must pay their drivers in advance of receiving payment for their invoices.  Also, carriers have fuel and equipment-related expenses that must be covered before drivers can hit the road. It can take months after a load is complete before payment is made. Factoring companies that serve trucking and freight businesses can provide payment as soon as a load is complete, so the business can cover the cost of taking on the next load. At Charter Capital, we also provide perks like fuel cards for trucking companies, so they save even more money.

    Freight Brokers

    Freight brokers are in a similar situation. They’re waiting for shippers to pay, but they need to get carriers paid promptly, or they may stop accepting work. With factoring for freight brokers, the factoring company pays the invoice right away and can even send cash directly to the broker or carrier as part of a QuickPay program.

    Staffing

    Staffing companies find talented people, vet them, and place them. When you add the time for invoicing and waiting on payment, months can pass before the company sees a return on their investment. With staffing factoring, when a staffing company chooses this method, they get paid right away, so they can keep searching for talent and pay employees promptly. Many also appreciate that factoring relieves them of the collections process, so they’re free to focus on the business.

    Manufacturing

    Oftentimes, manufacturing companies use factoring to cover the contract’s initial expenses, like purchasing supplies and equipment. However, many use it to speed cash flow during slow periods and cover operating costs like payroll.

    Security Firms

    Similar to staffing companies, factoring helps security firms find talent and cover payroll. Both may use their factoring cash to fund acquisitions and negotiate discounts with suppliers too.

    Oil & Gas Services

    Companies in oil and gas use oilfield factoring for a wide variety of things. Because they often support large corporations that can take ages to pay, the streamlined receivables process allows them to cover their daily expenses, grow, and position themselves more competitively.

    Consulting & Service Firms

    Like many of the others outlined here, consulting and service firms choose factoring to cope with delays between the output of their expenses and final payment from a customer. They often put the advances to work, covering recurring expenses, growth, marketing, and getting debts paid off.

    Solve Your IRS Issues with Factoring

    As a leading factoring company with experience helping businesses cope with their IRS troubles, Charter Capital can walk you through the process and your factoring options. To kick off the process, request a free quote.

    Disclaimer: The author of this article, Charter Capital, and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

  • QuickPay vs Factoring: What’s the Difference?

    QuickPay vs Factoring: What’s the Difference?

    QuickPay vs Factoring Differences

    Creating consistent cash flow as a carrier in the trucking industry is a complex and often challenging task. As an experienced trucker, you’re familiar with the routine: you complete a job by moving a load, then immediately have expenses such as fuel, vehicle maintenance, insurance, and various other operational costs. These expenses accumulate steadily while you’re out on the road. Often, amidst the hectic schedule of a truck driver, it might take several days before you can sit down to process and send out an invoice for the job you’ve just completed. Once the invoice is sent, the waiting game begins. You might find yourself in a position where you’re waiting 30, 60, or even more than 90 days to receive payment for your services. This delay in payment can create significant financial strain and uncertainty, particularly for small or independent trucking companies.

    Given these challenges, it’s not uncommon for carriers to start exploring different financial solutions. Many truck drivers and trucking companies begin to consider options like bank loans or alternative methods to accelerate the receipt of load payments. This is where the concepts of freight factoring and the quickpay option often come into the discussion. However, understanding the nuances of these financial tools and determining which one is most suitable for your specific needs can be daunting.

    At Charter Capital, we understand these challenges, which is why we offer both freight factoring and quickpay options to our clients. Our goal is to provide truckers and trucking companies with viable financial solutions that align with their unique business needs and cash flow requirements. We believe in full transparency and have no interest in pushing one option over the other. Our primary concern is ensuring that you, as a carrier, find the most effective financial solution to maintain and grow your business. Below, we will delve into both freight factoring and quickpay, helping you make an informed decision that best suits your trucking business.

    What is QuickPay in the Trucking Industry?

    Quickpay is a cash flow accelerant that some brokers offer. Instead of waiting for an extended period for payment, the broker offers cash advances to carriers through a process known as Quick pay. This system allows carriers to receive funds in exchange for a discount on the total invoice amount. The discount percentage can vary, typically ranging between one and five percent of the full invoice value. Plus, the timeframe for receiving these payments also differs among brokers. While some offer same-day funding, making quick pay an attractive option for immediate cash flow needs, others might take several days to a week or more to process your payment.

    Quick pay for truckers is especially beneficial, as it provides them with the financial flexibility they need to maintain operations without the burden of waiting for delayed payments. This system is crucial because many brokers themselves face cash flow challenges. They often find themselves in a predicament, waiting for shippers to settle their dues while simultaneously needing to cover the unpaid invoices from carriers. Charter Capital’s Quick Pay services are designed to bridge this gap effectively. By using Qquickp Pay, truckers can get paid within a much shorter timeframe, alleviating the financial stress associated with delayed payments and helping them manage their cash flow more efficiently. This service offers a practical solution for truckers to maintain their financial stability and focus on their core business activities without the worry of prolonged payment delays. We offer factoring services for freight brokers and can quickpay their carriers.

    Benefits of Quickpay

    • Speeds up your cash flow by offering a payment option that covers operating expenses more efficiently.

    Drawbacks of Quickpay

    • Some brokers only offer it, so if you rely on it, you might wind up accepting low-paying loads to ensure you can work with a broker who does.
    • The percentage fee will vary, which may make it hard to predict expenses.
    • The fees can add up, cutting into your income.
    • The broker knows you’re tight on cash and may try to negotiate for lower rates.

    How Does Invoice Factoring Work?

    Recourse and non-recourse factoring are cash flow accelerants that factoring companies offer. This is a one-on-one relationship in which the factoring company purchases your invoice at a slight discount, provides you with immediate payment, and then collects payment from the broker. Like quickpay, the rate varies anywhere from about one to five percent of the invoice’s value. You can also generally choose between getting paid right away or waiting a few days.

    With non-recourse factoring, you won’t be on the hook for paying the balance back if the broker doesn’t pay. With recourse factoring, you could be. However, this is rare because factoring companies perform credit checks on the brokers to determine their creditworthiness before an invoice is accepted. If a particular broker’s invoices don’t qualify, it’s likely because their ability to pay is in question. That helps you weed out potential non-payers too.

    Benefits of Factoring

    • Your cash flow is much faster. You can receive cash within 24 hours.
    • Can potentially work with every broker you move loads for.
    • Allows you to choose which invoices you get advances on.
    • Relieves you of managing your accounts receivables.
    • Helps you gauge the creditworthiness of brokers.
    • May come with perks like fuel cards.

    Drawbacks of Factoring

    • It is generally slightly more expensive than quick pay fees due to the additional services provided, but you can shop around for a good rate.

    Charter Capital Offers Additional Benefits

    If you’re considering accounts receivable factoring for trucking, Charter Capital can help you even more. We offer:

    • The highest advance rates in the industry.
    • No application fee or hidden fees.
    • A streamlined application process with very little paperwork and fast approval.
    • Dedicated account managers who care about your success.
    • Comprehensive reporting.

    Get a Complimentary Quote

    Quickpay is a good option when you need fast payment after a load, but if your broker doesn’t offer it, you appreciate the additional benefits associated with factoring, or you want to see if you can get a lower rate by factoring, you owe it to yourself to find out more. Get started with a complimentary quote from Charter Capital.