It is not uncommon for a business to run into cash problems. Regardless of the company’s condition and industry you operate in, having little cash in hand can affect the business operations. Luckily, there numerous ways to enhance your business cash flow and ensure smooth operation. One of the ways is invoice factoring. Invoice factoring service is a type of accounts receivable financing that converts outstanding invoices due within 90 days into immediate cash for your small business.
The buyers receive invoice payments when due. The factoring company pays about 85% of the invoice value. The remaining amount is released minus the factoring charges once the company receives payment from your debtors.
Benefits of Invoice Factoring Services
1. Fast Cash Access
Businesses need cash to purchase inventory, pay suppliers, and hire staff. Invoice factoring services is a great option if you need fast cash for a business operation. The services ensure you get cash from invoices the same day. Funding approved invoices take less than 48 hours. This is quite faster compared to the period banks take to approve loans. Traditional lenders may take weeks to fund business loans. Here is another interesting thing. Factoring is not a debt. Therefore you get an opportunity to access the cash faster without adding liabilities to your business balance sheet.
2. Flexibility
Invoice factoring services have flexible financing terms. Many small business factoring programs do not have minimums, maximums or long term contracts. You, therefore, have the freedom to choose the invoice you want to factor and how often you want to do it. This means that you can access more funding as sales increase. Also, load factoring companies allow you to spend funds according to your plans. They do not dictate how your business should spend the money or force you to purchase assets or equipment. Also, most mainstream financial institutions prefer dealing with big business. Invoice factoring service is, therefore, a good choice for small businesses.
3. Stable Cash Flow
Insufficient cash flow can make it hard for your business to cover daily expenses. This can put your business operation and growth at risk. Invoice factoring services provides loan against your invoice and hence stabilize your expenses. This means that you can easily cover your business expenses and meet unexpected needs. You do not have to wait for customers to pay so that you can settle bills. Factoring services allow you to remit taxes on time, pay bills and pay workers without risk of damaging your creditworthiness or incurring late fees.
4. You Do Not Require Strong Financials
Factoring services do not need great credit or strong financial history. In fact, factoring companies are mostly concerned with your customers’ ability to pay. Thus, if some business problems have affected your credit negatively, you can still access funds.
5. Business Growth
Steady cash flow is a requisite if you want your business to grow. It allows business owners to focus on new customer acquisition instead of chasing debtors. Another advantage of factoring service is that you can extend credit to deserving loyal customers who need the facilities. The business can pay suppliers and hence avoid constraint of supply chains. Lastly, you can focus on enhancing your business marketing instead of dealing with debtors. These benefits give you a competitive advantage over competitors who have funding problems.
6. Additional Services
Ideal business factoring companies offer additional support in managing your business finances. These services include aiding in debt collection to ensure you get paid faster.
7. Reasonable Fees
Cost of Invoice funding has reduced over the years. You can easily get 95% advances at very affordable fees. However, the fees vary according to customer creditworthiness, advance rates, number of invoices ,invoice volumes, and industry.
8. Professional Services
Factoring firms offer professional receivable management. They will expertly deal with all paperwork and hassles that come with collection of invoice payments. This relieves you the stress and headaches of following up on invoice payments. You, therefore, get ample time to concentrate on other jobs. Factoring services also allow you to offer credit to more customers and hence increase sales.
Conclusion
Invoice funding service is suitable for small business that needs steady cash flow. It reduces the risk of bad debts and late payment. You should, however, ensure you seek services of a reputable factoring company.