A business’s finances are a constant balancing act. One moment, you’re flush with cash; the next, you’re dealing with delayed customer payments. In the end, your profit and loss statement will be the judge of your business’s financial health. And if your previous statement is less than impressive, it might be time to add factoring to your toolkit.
In this post, we discussed what goes into your P&L statement, how factoring can improve your results, and how you can get started. Keep reading and see why many businesses are partnering with a Florida factoring company like Factoring Express LLC.
What is a profit and loss statement
A profit and loss statement (P&) is also known as an income statement, profit statement, statement of operations, and a list of other monikers. Whatever your business calls it, a P&L outlines your company’s revenues, costs, and expenses within a specific period.
P&Ls are often done monthly, quarterly, or annually. The purpose of this statement is to give you a bird’ s-eye view of your business’s financial health. It tells you whether your company is making or losing money, giving you a bigger picture of how scalable your business can be.
Aside from that, P&L statements allow you to see if your net profits are well within industry benchmarks. You can also use this financial statement to budget and forecast future profits.
However, there’s one huge bane in every company’s P&L statement: delayed payments. While late payments don’t alter revenue recognition on the P&L statement, they can manifest in different ways.
Delayed payments could force you to say ‘no’ to customers due to a lack of funds to fulfill contracts. Some suppliers may also impose late fees for delayed payments, which will be recorded as an additional expense on your financial statement.
Ultimately, late payments will strain your business’s cash flow and your ability to stock up your inventory. When that happens, your sales will suffer, leading to missed revenue targets.
The importance of a healthy profit and loss statement
A healthy profit and loss statement example is a sign of good business. Here’s why it’s crucial to keep an eye on your P&L statements regularly:
- It tracks your financial performance. Your P&L statement serves as the ‘performance evaluation’ of your company. It shows you how profitable your business is or how much losses you’re incurring within a specific period. From there, you’ll know if you’re due for scaling or if you have a fire to put out.
- It helps you lower unnecessary costs. P&L statements help you spot excessive spending, allowing you to implement cost-saving strategies. It will also give you objective reference when negotiating better deals with customers and suppliers.
- It’s crucial for tax preparation. Tracking your P&L ensures you report your income and expenses accurately, reducing the risk of overpayments or IRS penalties.
- It’s essential for budgeting. Your P&L statement can be the foundation of your business’s future growth. It helps you forecast revenue and expenses, allowing you to budget for the next period strategically.
- It helps you identify seasonal trends. Comparing your P&L statements from previous periods will establish patterns in your profits and expenses, allowing you to plan better for slow months and peak seasons.
How factoring improves your profit and loss statement
Factoring is a form of financing where businesses sell their outstanding invoices to a factor where they receive fast cash advances. Unlike loans, factoring is a sale and does not entail any interest or monthly payments. It’s a popular financial solution for businesses, and it can help improve your P&L statements in the following ways:
1. More sales through reliable funding
Factoring allows businesses to convert unpaid invoices to cash. This cash flow boost gives business owners like you enough funds to fulfill more and bigger contracts. The result? More profits will improve the outcome of your next profit and loss statement.
Overall, quick business funding through factoring allows you to increase production and meet higher demand. It also positions you as a serious player in your industry since you can deliver fast and provide better service.
2. Reduced debt servicing expenses
Loan fees, interest, late payment penalties, and debt issuance costs are all written off as losses on your P&L statement. But with factoring, you can reduce your reliance on traditional loans and minimize such losses on your next financial report.
Factoring in unpaid invoices can improve your P&L statement and maintain a healthier balance sheet.
3. Preventing bad debts
Non-payments are written off as losses on your profit and loss statement. Through factoring, you can transfer the risk of non-payment to the factor under non-recourse terms. As long as your invoice meets the criteria, you can convert it into cash while reducing non-payment risk for your business.
Aside from that, factoring allows you to extend flexible payment terms to clients. This can help reduce the risk of non-payment as customers can pay in installments.
Also, factoring companies have dedicated collection teams who will ensure your factored invoices get paid on time.
4. Better inventory management
Through factoring’s instant funding, you’ll have enough funds to stock up your inventory and fulfill orders immediately. The improved cash flow factoring offers allow you to purchase inventory in bulk, often at a discount, helping you lower the cost of goods sold (COGS).
Also, the instant availability of funds allows businesses to implement just-in-time (JIT) inventory management. This strategy involves buying inventory only when needed to avoid overstocking, especially for seasonal goods.
5. Decreased Days Sales Outstanding (DSO)
Days Sales Outstanding or DSO refers to how quickly your company collects cash from your credit sales. While it’s not directly listed on your P&L, the components used to calculate it is found on the statement, such as net sales.
Factoring lets businesses receive payment from outstanding invoices faster than traditional collections. This means business owners can reinvest the collected cash into operations right away or use it to pay down liabilities quickly.
Aside from that, a lower DSO makes your company more attractive to lenders. This will be a big advantage once you decide to take out a business loan in the future.
6. Increased gross profit
Ultimately, factoring helps enhance your company’s gross profit margins. Increased profits help reduce losses while boosting your cash on hand. This will improve your company’s financial health and attractiveness to potential investors in the long run.
And with more profits, you can invest in growth, such as hiring more people, improving your product, expanding your services, or acquiring new equipment.
Ready to get started?
Factoring is an effective way to boost your cash flow and improve your business’ profit and loss statement. Setting a good accounting profit and loss statement example will benefit your business in the long run, especially when attracting investors or taking out loans.
Instead of relying on traditional loans to receive funds, you can leverage your unpaid invoices for a small factoring fee. This way, you can finally receive the amount tied to your invoices without chasing down payments from customers.
If all these sound good to you, contact Factoring Express LLC to get started! We offer a free one-week trial, so you can experience quick funding tailored to your business with no strings attached.
If you’re looking for a ‘factoring company near me‘, contact us today and learn more about how our factoring service can help your business grow!
