Juggling multiple tasks and executing them precisely is one of the skills that are needed to manage a food service company. And whether you run a caterer or a full facilities service management company, there is no task that is more important than managing your cash flow. This is where most of the serious problems can appear – especially for smaller or rapidly growing food service companies. The most common cash flow problem originates from slow paying commercial customers.

Most food service companies need to give their commercial customers up to 60 days to pay their invoices. However, not everyone can afford to wait that long because of other responsibilities, such as supplier payments, rent and payroll. Larger food service companies can handle this problem by simply using their cash reserves to cover expenses until customers pay.  Few smaller or growing companies have reserves, which puts them at risk of missing critical payments or possibly going out of business.

One way to solve this problem is to use business financing to pay for expenses until invoices get paid. However, getting a business loan in the current environment is very difficult. Most institutions will only provide a business loan to food service companies that have impeccable financial statements, a solid track record and owners with plenty of collateral. This will leave many food service companies out of the running. But for many, a business loan is not the best way to solve their cash flow problems. A better solution may be to use invoice factoring.

Factoring accelerates the cash that is due from slow paying invoices. However, it does not require that your customers pay sooner. Rather, an intermediary factoring company advances funds to your company, using your invoices as collateral. The factoring transaction settles once your customer pays the invoice in full.

One of the advantages of using invoice factoring is that it’s easier to obtain than most business financing solutions. The most important requirement is that the customer paying the invoice needs to have a good payment record. It’s OK if they pay slowly, provided that they pay. Aside from that, the invoices need to be free of any encumbrances, such as liens of judgements. This makes invoice factoring an ideal solution for growing businesses that have good growth potential, but don’t have substantial assets – aside from their invoices.