How can you finance your business with a cash advance?

What is a cash advance?

The cash advance is a financing solution that provides a company with rapid access to liquidity to meet its cash flow requirements. This is a short-term loan, generally less than one year, which can be granted by a bank, financial institution or online platform. It can be used to finance the company's operating cycle, to bridge a cash flow gap or to make an investment.

In other words, it consists of an amount of money lent by a financial institution, based on the company's future invoices or sales. This solution offers a rapid response to immediate cash needs. This can be essential for maintaining ongoing operations and promoting business growth.

What are the advantages

Cash advances offer a number of advantages for companies in need of financing. These advantages include

• Rapid access to cash allowing the company to finance its short-term operations;

• Limiting the negative effects of late payment . These create a cash flow gap. A cash advance allows you to bridge this gap while you wait for payment.

• Improved cash management. Cash advances enable you to finance your working capital requirements. So you can finance your operating cash flow with peace of mind.

• Flexible solution for fluctuating business needs . Even in lean times, you can benefit from cash flow to pay your bills.

• Opportunity to maintain current operations and promote growth. You can also use cash advances to finance investment projects, for example.

What are the drawbacks?

Cash advances also have certain disadvantages:

• Additional interest and commission costs ;

• Risk of overindebtedness or even bankruptcy;

• High costs may jeopardize long-term profitability;

• Financial constraint if future revenues do not match expectations ;

• Possibility of damaging customer relations if the collection process is managed aggressively;

• Financial dependence on the lender, and perhaps even loss of control over capital in the case of a dilutive source of financing (venture capital, for example).

When does a company need a cash advance?

A company may need a cash advance at different times, depending on its financial situation and activity:

Seasonal activities

Some companies have activities that vary according to the season . As a result, they generally feel the need to finance their current expenditure during off-peak periods, while awaiting the return of income during periods of high demand.

A Banque de France study has shown that seasonal companies need 50% more cash than non-seasonal companies, on average.

Late payments

Granting payment terms is common practice in the business world. They are part of a forecasting plan defined in advance. So it's never good news when customers fail to pay on time. This is because payment delays can result in additional costs for the company, such as :

• Des agios bancaires ;

• Late penalties ;

• Collection costs

All this creates a gap in the company's cash flow.

Unforeseen events

These could be strikes, theft or natural disasters, for example. These are unpredictable events and can call forecasts into question. Above all, they can create a discrepancy between cash inflows and outflows, which can jeopardize the company's financial equilibrium.

When sales decline

This can lead to lower sales and profit margins. This can affect the ability to pay suppliers, employees or taxes.

What are the solutions for cash advances?

In case of need for cash advance There are several possible solutions for companies.

Factoring

Factoring involves transfer invoices to a specialized organization, called a factor, who collects them from the customer. In return, the factor makes a cash advance to the company . Factoring allows you to :

• Reduce payment times;

• Securing receivables;

• Simplify administrative management.

Bank loans

This is a classic solution for obtaining a cash advance. It involves a contract by which a bank makes a sum of money available to a company, in return for the payment of interest and the observance of deadlines. With a bank loan, you can finance one-off or permanent needs, benefit from a fixed or variable interest rate and choose the repayment period.

Le crowdfunding

Crowdfunding, or participatory financing, is an innovative solution for obtaining a cash advance. It involves solicit financial contributions from the general public, via an online platform, in exchange for a donation, loan or capital contribution. Crowdfunding enables you to raise funds quickly, test your market and create a community around your project.

Bank discounting

It is a short-term financing solution that enables a company to assign a receivable to your bank in exchange for an immediate cash advance . The bank then collects the receivable from the debtor on the due date. Bank discounting gives companies rapid access to cash to meet their financial needs, without waiting for payment from their customers.

Hero: fast financing for your cash flow

Hero is an alternative to traditional cash advance solutions. Hero stands out as B2B payment platform which offers an innovative solution to companies' cash flow needs. By combining technology and financing, we accelerate the financing process while providing tailor-made options for companies seeking to optimize their cash flow.

Hero offers two payment options: l eferred and instalment payments . Deferred payment allows a company to pay invoices beyond the legal payment deadline (we pay your invoices for you, and you reimburse us later). This allows the company to avoid a cash flow gap, giving it time to collect its accounts receivable before paying its invoices.

On the other hand, fractional payment is also a beneficial payment facility for a company. Thanks to this option, you can pay for your purchases in 3 or 4 instalments.

In both cases, you don't risk damaging your business relations with your suppliers, since the platform settles them immediately.

In short, obtaining a cash advance can be a financial lifeline for companies seeking growth. It offers the flexibility needed to overcome temporary obstacles and maintain robust financial health. In this way treasury advance remains an essential lever in the successful management of a company.

Other articles on the same subject:

• Need for cash: what is it and how to react?

• Urgent cash needs: what are the solutions?

• Urgent cash needs for businesses: what solutions?