Most business owners will experience at least one cash-flow shock each year—late customer payments, seasonal dips, or unexpected expenses. Alone, each one seems manageable. Combined, they can threaten payroll, delay growth, or force a business into expensive emergency financing. 

With capital harder than ever to access, preparing for these financial “what-ifs” is no longer optional—it is a core operational discipline. This article explains how to build a contingency plan and access tools that keep your business moving, even when surprises hit.

Accessing capital is tougher than ever 

Capital is harder than ever to access for U.S. small and mid-sized businesses. In 2025, fewer than half (41%) of businesses received the financing they needed, and 81% of small business owners struggled to access affordable capital.

As a result, many businesses are seriously undercapitalized. A 2024 report found that 70% of U.S. SMBs have fewer than four months of cash to cover operating expenses, and 22% struggle to meet their financial obligations due to cash flow issues. Most concerning of all, business bankruptcies rose nearly 14% between 2024 and 2025.

Slow client payments, seasonal or unexpected sales dips, and unforeseen emergencies are all “what-if” scenarios that can devastate a small business when it doesn’t have a big enough financial cushion to soften the landing. The bottom line is that building up a contingency to cover unexpected costs has never been more important. 

How much of a contingency fund do you need?

As a general benchmark, every small business should keep three to six months of operating expenses in their cash reserves. However, this rule isn’t set in stone. Depending on your business’s maturity stage, industry, and business model, you may need more or less than that for optimal financial health. 

Startups, for example, may begin with significantly less and allocate a small percentage of their revenues each month to build up their reserves over time. Businesses with very efficient accounts receivable (AR) processes may require less than three months of expenses on hand, while those with lengthy payment terms or less predictable payments may need to set aside six months or more. 

Using invoice factoring to build cash reserves 

Not every company can qualify for a loan or line of credit large enough to keep the business afloat for months. Even those who are able to may not want to carry that kind of debt. Companies seeking better alternatives may be surprised to learn that invoice factoring can help them maintain a contingency fund. 

Pam Green, an account manager at AR Funding, works closely with new clients to ensure they have access to the cash flow they need to grow and be ready for the unexpected. Over the past seven years, she has seen some clients struggle and others succeed, and she says it all comes down to thinking strategically about cash flow. 

To illustrate the point, she shared a story about a client who would only factor a few invoices at times when the business was struggling. 

“A customer missed a payment deadline, and our client needed to scramble at the last minute to avoid missing payroll,” Green said. “In this case, we were able to move quickly and advance the funds.” 

However, it was touch-and-go, and the situation required a significant amount of time and energy to resolve. By contrast, Green described the experience of another client who had chosen to factor all their invoices with AR Funding. 

“In this case, the funds went directly into an escrow account that the client could access any time,” she explained. “If they needed the funds before the invoice was paid, they were charged a small fee. If they ended up not needing any advance funds, no fee was charged.” Essentially, the funds were like a short-term line of credit, always there if the client needed them.

Factoring misperceptions hold businesses back

Green encourages clients to factor all their invoices because they will see greater benefits at no extra cost. But she said that myths about how factoring works can be a barrier. 

“Many people think that when they factor invoices, the factor holds on to their money,” she said. In fact, funds collected against the invoices are kept in an escrow account that can’t be touched without the client’s permission. 

Clients also worry they won’t be able to access funds quickly enough, but Green said that funds are usually in their hands on the same day they request them.

Clients also tend to believe that the cost of factoring goes up when they factor more invoices, but that’s not how it works, Green said. “Clients don’t pay fees when they factor invoices,” she explained. “They only pay fees when they access funds before the invoice is paid.” If they don’t withdraw the funds early, no fees are charged.

Factoring is an operations strategy, not a quick fix

Green’s experience with factoring clients of all sizes and types has shown her that the businesses that see the greatest success from factoring are those that view it as part of their operational strategy. 

“We still have a few clients who come to us once or twice a year when they face a cash crunch and need spot funding,” she said. “We are happy to help them, but ultimately, they are missing out on the biggest benefits of factoring.”

The businesses that approach factoring as an integral part of their growth strategy are the ones that often end up moving on to other financing solutions over time, Green pointed out. 

“We help them accelerate growth, improve cash flow so they can operate smoothly, pay down debt, and expand operations,” she said. “Ultimately, our goal is to get them to a place where they may not need factoring because they now qualify for low-cost bank loans or don’t need any form of financing.”

Is your business ready to face the “what-ifs” whenever they arise? Talk to a factoring expert about your business goals to see whether factoring could help you reach them sooner.