4 Ways Factoring Can Help a Seasonal Business

December 19, 2022 | Blog

 

“Cash is king” is perhaps the most universally accepted business phrase of all time.

Without cash, a business can’t operate. It’s required to meet payroll, pay operating expenses, and invest in growth. Long-term positive cash flow is also a prerequisite to secure traditional financing, such as a bank loan.

Seasonal businesses operate under a unique set of circumstances, where cash flow is uneven throughout the year. Cash needs are imbalanced; up-front capital is needed to prepare for the busy season, and it’s also needed to keep up with mid-season expenses. The intensity only increases if there’s a mismatch or gap in the payment cycle from when customers pay their invoices and bills need to be paid. And every business needs to manage its cash for year-round expenses and to capitalize on opportunities.

If your seasonal business is struggling to fund all your costs as they need to be paid, or lacks the capital to invest in growth, you may find yourself looking to a bank or other financial institution for a loan – and you may also find that your erratic cash flow precludes you from securing that loan. Factoring provides a funding option that’s often more suitable to seasonal businesses that are stable but don’t fit the bank’s cash flow requirements.

Factoring – also known as accounts receivable financing – is the sale of an unpaid invoice for immediate cash. It’s not a loan, or debt. For a business whose cash flow is low because of seasonality, it can be a lifesaver.

So how can factoring help a seasonal business that needs cash flow to operate? Here are four key reasons:

1. Pay for production or buy inventory

If you’re selling faster than you’re receiving payment, you’ll very quickly run out of cash to pay for production or more inventory. It’s impossible to earn revenue if you don’t have any products or goods to sell. Sky Business Credit can immediately pay out cash tied up in invoices through factoring, providing much-needed funds to keep your operations going.

2. Keep up with payroll, bills, and operating expenses

Preparing for and operating through the seasonal spike in business requires cash: to hire workers, payroll funding, purchase new equipment, repair damaged equipment, and more. Factoring can provide seasonal businesses with cash or a line of credit to be financially and operationally ready for and through the peak season of business.

3. Free up time and resources during your busy season

How much time have you spent pursuing payment on invoices, or have not been paid at all by a customer who has their own financial issues? Factors will take over the credit review & collection process, allowing you to focus your energy and attention on the aspects of your business that will help it grow and thrive.

4. Invest in growth

The off-season can be a time for a seasonal business to focus on its growth strategy. But without the cash flow to fund it and the energy to follow through, even the best-laid plans will fall flat. Factoring not only helps the business to manage cash flow more consistently year-round, but it also can decrease stress levels and free up time–especially if there are still unpaid invoices to be collected.

If your business experiences the peaks and valleys of a seasonal cash flow, factoring is a debt-free way to stay cash-flow positive year-round. For a seasonal business, that can be the difference between surviving and thriving.