While most small business owners choose to factor to have quick and easy access to fast cash to fuel their day-to-day operations, invoice factoring has several other advantages, particularly for organizations that don’t have large working capital and need to rely on customer payments to keep the business going.
Here is how invoice factoring, also known as invoice financing and accounts receivables factoring, can benefit your business.
Fast Cash When You Need It Most
Working capital keeps a business alive and kicking, but when payments for completed projects don’t come in time, the whole business cycle gets disrupted. Plus, one becomes wary of taking on new orders for fear of running out of cash mid-project.
A factoring company, or factor, takes over your unpaid invoices, pays you instant cash against up to 95% of the invoice value, charges a small fee for the service, and goes on to contact your client for payment. This gives you the freedom to carry on and grow your business without helplessly waiting for clients to pay up.
No More Dependency on Unreasonably Large Credit Cycles
Based on the type of industry, current payment norms, and your relationship with the client, payment cycles can range from anywhere between 30 and 90 days. Even then, more often than not customers tend to process pending invoices when they’re way past due, leaving small business owners grappling with a cash crunch that could lead to unpaid salaries, delay in vendor payments, defaulted utility bills, inventory issues, and so forth.
With factoring, a lot of these issues are resolved as there is no shortage of cash to keep your organization functional.
Facility to Avail Instant Cash despite Low Credit Rating
The business environment has never been as volatile as it is today, so even well-meaning small business owners can suffer the setback of a poor credit score, leading banks and other financial institutions to consider them unsuitable for lending large sums.
Factoring companies, on the other hand, buy your accounts receivables (or invoices) based on the credit rating and market standing of your B2B customer. This means that your organization’s credit score is not of relevance to a factoring service as they are essentially giving you cash advance after doing a thorough risk assessment of the client whose invoices you’ve chosen to factor.
When you choose to factor, you’re not incurring a debt or taking out a loan; you are simply selling your receivables to a professional funding company with experienced collection staff dedicated to a single task—following up with your customers and continuing to do so until full payment is received. Moreover, unlike bank loans, there is no limit to the volume of funds you can seek from a factoring service, which is especially helpful if you are yet to establish yourself as a creditworthy business.
Check out the industry-specific invoice factoring services at https://www.factorfinders.com/invoice-factoring-services to know why it makes sense to factor your accounts receivables and get convenient and consistent access to fast cash against your unpaid invoices.