Getting paid early is always a good thing. And if you’re a small business owner, it’s important to get paid on time, so your company can continue to function smoothly and grow. But sometimes, it takes a while for customers to pay their bills, or suppliers have exorbitant terms that make it difficult to invoice them on time. There are certain ways to do this like opting for early direct deposit. Read on to learn about more such ways:
Purchase order financing
Purchase order financing, or P.O. financing, is a financial tool that specializes in providing working capital to businesses that have been approved for purchase orders but don’t yet have the funding necessary to make the purchase.
It works by lending money based on the value of your outstanding purchase orders and then collecting it back once you receive payment from your clients. This allows you to keep purchasing inventory as usual and pay back the loan when you’re able.
According to the experts at SoFi, “The benefit of P.O. financing is that it’s an easy way for small businesses with good credit histories to secure working capital without being required to provide collateral or equity shares upfront (though these are sometimes required).” In addition, many providers will offer extended repayment terms so they can earn interest on longer-term loans while still making timely payments on their invoices if their customers pay them faster than expected—which could help prevent any potential cash flow issues down the road.
Accounts receivable factoring
Factoring is a form of asset-based lending. This means that a business can borrow money based on the value of its invoices, which represent future revenue. When you factor in invoices, you’re essentially selling your accounts receivable to a third-party lender at a discount. The bank will advance your money now and then pay itself back with interest once your clients have paid their bills.
Factoring can be a good option for small businesses that have a steady stream of invoices coming in—especially if those invoices represent an ongoing contract with one client or several smaller ones (like monthly subscriptions).
Asset-based lending (ABL) is a form of financing that uses the borrower’s assets as collateral. It can be used to finance a range of assets, from commercial real estate to equipment and inventory. ABL is usually only available to businesses with high credit ratings and strong cash flows, but it’s flexible and allows funding for short or long-term periods at competitive rates.
An overdraft is a short-term loan that you can get from your bank. It’s like the difference between a regular savings account and a credit card: when you have an overdraft, your bank will cover any purchases that would otherwise cause your account to go negative, but it will charge interest on the money and will likely require you to pay back the balance within a month or so. Overdrafts are useful for emergency purchases, but they’re not an effective way to get paid early because they come with high-interest rates and may be difficult to manage if you’re already in debt.
There is no magic wand that will make you rich overnight. However, the tips and tricks that were shared in this article will help you get a better understanding of how to create wealth and become financially free.