When your business is dealing with cash flow issues, you may be looking for options. One option is invoice factoring. This involves your account receivables being purchased for cash. The cash is typically available in two weeks (or sooner).
While invoice and freight factoring are effective ways to enhance your cash flow now, you may still wonder if it’s right for your business. Finding out more about the benefits is the best way to make an informed decision about this method of improving your cash flow.
Fast and Easy Access to Cash
As a business owner, you must maintain an adequate amount of cash flow to ensure you can continue financing your operations, including paying employees and suppliers and settling other business expenses, such as utilities and rent.
However, if your business provides credit to your customers, you may experience other cash flow issues. This is especially problematic if you are offering longer credit terms to your customers or if many debtors don’t settle their accounts on time.
This is a situation where invoice factoring is invaluable. In most situations, businesses that come to companies to offer factoring services receive financing in just ten days. Compared to a bank that may take weeks or even months to approve a business loan, factoring is the faster option.
Remember, though, that each company is different, so it is necessary to find a service provider and understand their terms and requirements before moving forward with the process.
Increased Business Growth
If you want to grow your business, you must have access to a steady flow of cash. There are a few reasons why factoring is beneficial to growing your business. For example, it allows you to focus on gaining new customers instead of chasing after debtors. It also allows you to offer credit lines to your loyal customers who require credit facilities.
With factoring, you also have the cash needed to pay your suppliers and avoid potential supply chain constraints. Thanks to consistent cash flow, you can focus on marketing your business, instead of trying to avoid or fend off creditors. Each of these factors can help you continue growing your business.
Factoring Offers Affordable Fees
The cost associated with accessing factoring services has decreased significantly in the past few years. Usually, factoring fees range from 0.5% to 3.0% of your business’s turnover or business volume. You should note, though, that the fees will vary from one industry to another. Also, invoice factoring providers will consider the overall creditworthiness of a business’s customers, the invoice volume, and how long it takes (on average) for customers to pay.
Flexible Financing Terms
Trying to acquire financing from a traditional lender, like a bank or credit union is challenging for most small and mid-sized businesses. This is because when talking about business financing, most of the mainstream financial institutions would rather deal with more established brands and companies. The good news is even relatively small businesses that may find it challenging to acquire financing from mainstream banks can use factoring services.
This is because invoice factoring services typically look at the ability your customers have to pay their outstanding invoices instead of the business’s net worth. Also, a factor can usually offer more financing when needed. For example, if your business has an increase in sales volume, you can ask the factor for additional funds.
Reduce the Possibility of Bad Debts and Late Payments
Customers making late payments and those with bad debts can be devastating to any business. While you have the option to take legal action against someone who does not pay their debts on time or who are not willing to repay their debts, the process is often long and expensive. That’s because you have to hire a lawyer to represent your business. If you want to avoid this situation, find a factoring company. These service providers have a team of professionals who know how to deal with customers who are late with payments or who fail to pay altogether.
Finding the Right Factoring Company for Your Business
Remember, not all factoring services are equal. It is necessary to put time and research into finding the one best suited for your business needs. By taking some time to research the options, you can find a company that will meet your business needs now and in the future. Being informed and knowing what to look for is the best way to ensure you see the benefits mentioned here and that you get the fast access to cash your business needs for ongoing operations.