Maintaining positive cash flow can prove to be difficult if you’re business is smaller or new. If your business sends out invoices to your customers, you’re familiar with invoice terms. For example, you provide your service or product and then your customer has up to 15, 30, or even 45 days to make their payment. Depending on your terms and how long your clients typically take to make their payment, waiting around for money can make it difficult or even impossible to continue working on other jobs or producing more products until you receive that money.
Paying your workers, purchasing materials, and taxes are all expenses that occur frequently. Having troubles with cash flow can impact whether or not these important expenses get taken care of. Alternative forms of financing can help get rid of some of the stress that comes along with waiting to get paid. If you’re willing to sell some of your accounts receivable, it’s possible to eliminate waiting completely.
Invoice factoring is one way that businesses get through inconvenient waiting periods or any other downtime while still being able to work and grow their business. With factoring you sell your accounts receivable to a factoring company at a discount. In exchange for the accounts receivable, the factor then gives you an advance for most of the money you’re owed on your invoices, minus their service fee. The factor also assumes any and all billing/collection responsibilities on the invoices that they purchase from you.
3 Reasons Why Factoring Can Help
- Banks loans take time. Loans can be difficult and pretty time consuming to obtain, which isn’t ideal at, especially if you’re currently experiencing cash flow problems that need addressed as soon as possible. Factoring is convenient, simple, and quick. Any business that has an accounts receivable can qualify, which means that businesses that feel limited to their funding options now have an opportunity to seek the financing they need.
- Factoring is not a loan, it’s an advance. You won’t be locked into any monthly payments or long term contracts. Basicly what you do with factoring is sell your invoice at a discount, and receive most of the money you’re owed now instead of all of it later, whenever your client decides to pay.
- Factoring also provides your business with growth opportunities. When your business has the cash flow to not only take care of expenses and payroll, but to stay ahead in your industry, it means that you can take on more jobs and other opportunities that come up that will help your company grow.
Things to Keep in Mind While Factoring
While this funding method can be extremely helpful to your business, you should still be mindful of a few things. Only sell the invoices that you need to sell, and choose which ones carefully. Factoring companies are interested in the creditworthiness of your clients, not your business. With that in mind, when selecting invoices to factor, choose those who belong to clients you know will pay. If your clients have good credit, you could end up with a better rate, since there’s less risk involved. Keep this handful of tips in mind when looking for a factor, it will make your search easier.
Factoring may not work for every single business in the world, since everyone is unique, but many small and mid-sized businesses can gain the most from factoring. Factoring is a convenience, and like all other services you have to pay for it, but the trade off can do great things for your business. To learn more about how invoice factoring can help your business, give us a call today!