Small businesses will typically contribute their success to their employees that they rely on. Many small companies, however, typically have a small profit margin for the first couple of years. This means they might experience some difficulty when it comes time to take care of payroll. To solve this problem, a lot of small business owners are using invoice factoring to free up their working capital so that they can pay their employees on time.
About Invoice Factoring
Invoice factoring is a type of alternative funding where a business sells the value of their outstanding receivables to a third-party factoring company, called a factor. The factor will then advance most of receivable amount (minus a small fee for their service) to the business and will then become responsible for collecting payment from the customers whose invoices were factored. Invoice factoring is not a loan, businesses that use it are not creating any debt.
How Factoring Helps with Payroll Problems
Payroll issues arise more often than you’d think with small businesses that bill their customers via invoice. This is because payment terms can range all the way up to 30 or 60 days, meaning if their customers don’t pay early, they’re waiting up to two months for payment for their services or goods. While waiting for these payments, businesses still have expenses that need taken care of — including paying their employees. If income isn’t regular, businesses could risk losing their employees, or their business entirely. However, with invoice factoring, businesses don’t have to wait that long for their funds. This eliminates the problem of wondering if you can pay your employees or make any other necessary business purchases.
Benefits of Invoice Factoring
Invoice factoring presents other benefits for small businesses as well. It offers almost immediate access to working capital, meaning that not only are payroll problems taken care of, but other business related expenses are too. Orders for materials, office supplies, advertising costs and other expenses that might have been pushed onto the back burner can now be addressed. If your business continues to have access to this working capital, it can help your business grow and thrive instead of merely surviving.
If you’d like to know more about invoice factoring and how it can help your business, don’t
hesitate to contact us today!