Working Capital

3 Common Misconceptions Suppliers Have About Using Invoices to Increase Cash Flow

Sept. 20, 2022
The C2FO Team
A businessman reviews invoices at his desk.

Break through your concerns: Here’s why your invoices are a powerful — and debt-free — way to increase cash flow, save time and invest in long-term success.

Every business can benefit from increased cash flow. More cash means more opportunities to scale operations, invest in inventory, hire new employees and ultimately take your business to the next level. A lack of cash on hand, however, can mean you’re unable to pay debts, vendors or employees, or invest in your business. Yet, it’s not uncommon for even the most successful and well-established businesses to experience cash flow challenges from time to time. 

Many factors can contribute to cash flow shortages, and one of the most significant causes is having excess cash tied up in accounts receivable. In fact, a recent Quickbooks survey of small to mid-sized businesses found that, on average, respondents were owed a staggering $304,066 in payments.

A lucrative way to decrease the average days your sales are outstanding, accelerate your cash conversion cycle and improve cash flow lies in your accounts receivable. Early payment programs can help you get invoices paid faster and reduce your overall number of late or unpaid invoices. Furthermore, dynamic discounting allows for faster, flexible and more affordable access to cash, whether you’re in a pinch or not. 

Of course, you may have reservations about using your invoices to increase cash flow. In this post, we'll explore how early payment improves cash flow and gives you more control over how and when you are paid. We'll also address some of the key concerns you may have about using an early payment platform and demonstrate how it can play a beneficial role in your business.

Why early payment programs are gaining ground with suppliers

Suppliers often face the challenge of waiting out lengthy payment terms and getting paid on time. This can cause gaps in cash flow that negatively impact working capital. With many businesses experiencing the financial pressures of the pandemic, inflation-squeezed margins and disrupted supply chains, the importance of adopting innovative solutions that help forecast and improve cash flow has heightened. 

In recent years, early payment technology has risen in popularity among suppliers — and the precarious economic landscape has fueled the demand. Using early payment programs, many suppliers have increased cash flow and generated positive working capital that has relieved their financial strain and provided the capital to seize new growth opportunities. 

A businesswoman talks about cash flow and working capital.

Early payment concerns and misconceptions

Despite the increasing popularity and clear supplier and buyer benefits of early payment programs, you may still be apprehensive about implementing one. This might be due to some of the common concerns and misconceptions regarding the reliability, convenience and costs involved.

You may be concerned about:

1. Profit margins

The concern: It will cut into already thin profit margins.

Understandably, you may worry about your profitability and protecting your margins. Or think, “Why on earth would I purposefully and proactively take less money than owed on an order?”

The reality:

There can, indeed, be some costs involved with speeding up payments on your invoices. However, accelerating your receivables helps to increase profitability by shortening your days sales outstanding (DSO) and tightening your cash conversion cycle. This allows you to reinvest in products to sell more quickly, thus earning you more profit in the long term. 

Additionally, with C2FO’s platform, you have total control over the discount rate you offer your customers, so you can choose the amount that fits your margins the best. The key is to look at it as an investment, because early payment programs will have a longer-lasting impact on your bottom line than the cost to your invoice margins.

2. Time and effort

The concern: Managing an early payment solution will create more work and take up time you don’t have to spare.

You may be hesitant because managing an early payment solution will create more work. For example, you may think you’ll have to draw up new contracts or fill out extensive paperwork just to get paid early.

The reality: 

The good news is that early payment solutions are mostly automated and do not create extra work for your team. Generally speaking, early payment platforms do not alter or interfere with your existing terms or payment processes. With C2FO’s platform, for example, you will be paid the same way, only faster. 

Furthermore, there is no lengthy paperwork involved, and new buyer contracts are not required. Compare this to collecting late invoice payments, which can be very taxing on your labor budget. In fact, in one survey, 65% of small to mid-sized businesses reported spending an average of 14 hours per week on tasks related to collecting payments. Because they speed up payment and streamline workflows, early payment programs like C2FO’s are more likely to save you time.

3. Cost 

The concern: It is more expensive than other working capital financing options.

You might be unsure how early payment programs can compete with alternative options for working capital financing, such as a loan or line of credit. Or think, “Why would I opt to discount invoices when I can easily borrow money elsewhere?”

The reality: 

Early payment programs are often a more affordable and convenient way to optimize cash flow — without taking on new debts. This is because early payment programs create more liquidity for your business, which is increasingly important in an unstable economy when rates are higher and lenders are more concerned about potential loss and credit risks. 

Conventional lending options like loans and lines of credit often have rigid qualification requirements, long application processing times (which you may not have time to wait for) and typically require a personal guarantee. Even if you are approved for a loan with a great rate, the additional fees often make the cost of borrowing more expensive than using an early payment program.

In summary

Every business depends on cash flow to sustain operations and grow, and maintaining healthy cash flow is largely reliant on your customers paying their invoices on time — or, even better, early. After all, cash stuck in receivables is cash that can’t be spent.

While you may be hesitant to take advantage of new financial technology to provide discounts and increase cash flow using your invoices rather than using traditional financing, the all-encompassing benefits of early payment programs far outweigh the risk. Ultimately, leveraging early payment on your invoices is a powerful and debt-free way to maximize cash flow, save time, mitigate risk in a poor economy and invest in the long-term profitability and success of your business. 

Discover how C2FO’s Early Payment platform helped seven suppliers relieve financial pressure. Ready to start using your invoices to boost cash flow? See if you have any outstanding customer invoices you can request early payment on now

Want to take control of your cash flow?

Early payment through C2FO can help.

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