WHAT IS INVOICE FACTORING?
Invoice factoring is selling your invoices (accounts receivables) to a third party or a factoring company to reduce debt and improve cash flow. Businesses that use invoice factoring see an immediate boost in cash flow. Independent finance providers or banks provide invoice factoring. Invoice factoring for small businesses helps the company to grow and develop.
Invoice factoring is a solution to cash flow problems. It provides short term capital by assigning and selling invoices to a factoring company or factor. The factoring companies usually give 70-90% of the invoice value in advance. Invoice factoring is an excellent option for businesses and companies that need access to cash quickly but are not able to secure a traditional bank loan.
Invoice factoring is much faster than a bank loan. Bank loans have strict policies to get approved, the loan approval process can take weeks sometimes months. Factoring can be approved in just 3-5 days.
8 WAYS TO BOOST YOUR BUSINESS WITH INVOICE FACTORING
There are many ways invoice factoring helps to grow. Some important ways to improve the cash flow of your business through invoice factoring are as follows:
IMPROVES YOUR CASH FLOW
You receive cash immediately when you sell your invoices to a factoring company. You don’t have to wait for your customers to make payments on the invoices, this gives you the power of buying raw materials, expand your business and fill orders.
Approximately 82% of businesses in the US deal with cash flow issues. Invoice factoring gives funding without worrying about debt since it’s not a loan it won’t be added to your other liabilities.
BETTER CREDIT CONTROL
The greatest benefit of invoice factoring is that the pressure of credit control is taken away from you; this saves you a ton of money and time. You will be confident and positive to accept terms with your customers because you won’t be waiting to receive payments from them.
For the invoices you factor, the factoring company will handle every side of credit control; this will include collecting the outstanding payments, checking your customer’s credit, and giving you detailed reports of transactions. These things can be very costly if you handle them yourself.
Also Read: Invoice Factoring Pros and Cons
When you work with a factoring company, back-office support services are provided and included in your fees.
INVOICE FACTORING LEADS TO YOUR COMPANY’S DEVELOPMENT
Every business owner has a vision about what their business would be in the future and has some dreams and aspirations regarding its growth. You need working capital for the company to enhance and grow.
Invoice factoring provides you with funds you require to expand your business, your marketing ideas for the company, taking on new customers and filling large orders easily. This way your business will have a strong future and your goals will be met.
INVOICE FACTORING IS QUITE AFFORDABLE
When you compare invoice factoring with other financial options such as a traditional bank loan, you will see that invoice factoring is an affordable and a cheaper funding option. You will not need to pay an interest rate; you will just be paying a factoring fee.
Based on the number of invoices that you factor, a transaction fee is applicable. You can negotiate the factoring fee with the factoring company and this fee structure will be the part of your agreement. You will know what you pay for in advance. Sometimes, you can also decide which invoices you want to factor.
QUALIFYING PROCESS IS EASY AND SIMPLE
When you apply for a line of credit or a bank loan, your personal credit score and business credit score play a huge role in whether or not you will qualify. It can be very difficult for many small business owners and operators to receive funds they require if their personal and business credit scores do not qualify for the process.
Invoice factoring companies base your client’s credit scores for the qualification criteria when they approve invoices. Invoice factoring companies not only review your credit, but they also check your customer’s credit and reputation. As long as your client has a good credit history, you can easily qualify for invoice factoring. It is simple and easy.
NO SPENDING RESTRICTIONS
The funds that the factoring company advances to you can you used according to your requirements. It is a flexible funding option because there are no restrictions on how you spend the money.
With invoice factoring, you will complete authority over every decision regarding how you use the money that you get. This is directly opposite to the rules for a business loan, with loans you are restricted and obligated to use the funds on the particular requirements for which you borrowed the money.
When a small business requires cash growth, a commercial factoring company can get the funds quickly to boost their business. These invoice factoring services provide other benefits like affordable financing, credit control and other important expenses.
DIFFERENT INDUSTRIES WORK WITH INVOICE FACTORING
The great candidates for invoice factoring are B2B businesses with reputable clients and longer net terms. The industries that use factoring are transportation, consulting, staffing services, retail, manufacturing, oil and gas service companies, construction, commercial services, distribution, IT services and software development, freelancers in the field of marketing, PR and creative, etc.
NO COLLATERAL REQUIRED
Invoice factoring does not require additional property security as collateral. Many traditional loans need to have collateral but with invoice factoring, there is no kind of collateral required and you do not have to worry about debt.
With invoice factoring services, you are just selling a valuable asset and not adding any more debt. Invoice factoring and bank loans are very different and have different terms and conditions.
Invoice factoring can give you access to cash quickly. It is an ongoing cash-flow process; it doesn’t have to be a one-time financing option.
The factoring companies look at the payment history of your customers, giving you a better chance of approval. There is no kind of collateral required. These are some of the advantages of invoice factoring and ways to improve cash flow of your business.