The ebb and flow of cash is a constant struggle, and banks are tightening down on the terms of loans and other lines of credit. Your options for additional cash dwindle by the day. However, accounts receivable factoring continues to grow.
Invoice factoring may be an option for you if you struggle with customers who don’t pay their invoices. Perhaps you feel like you’re always chasing down people who haven’t paid. Maybe you’ve even experienced a customer’s refusal to pay. These problems shouldn’t plague the majority of your day. Let someone else handle it.
What Is Invoice Factoring?
Companies that provide accounts receivable factoring give you cash for invoices immediately. Instead of waiting for your customers to pay, you can sell invoices to a factoring company. They pay you a portion of the invoice and keep the rest in reserve.
The factoring company takes care of collecting payment from your customer. When the customer pays, the portion of the invoice kept in reserve is then released to you, minus any factoring fees the company charges.
They don’t charge interest or a loan fee, meaning you don’t incur additional debt and you pay a flat fee for services rendered. The factoring company purchases these invoices at a discount. However, it eliminates the need for you to qualify for a loan and takes away the stress of collections.
Fast Access to Cash
Factoring is fast and easy. It takes five to ten days after applying to gather documentation and approve invoices. Funds are usually provided within twenty-four to forty-eight hours. The speed at which you receive this money is several times faster than banks and traditional loans.
In addition, you don’t need to meet the same qualifications as traditional lenders require, making it that much easier.
Factoring is not a loan. By using factoring for your outstanding invoices, you avoid additional liabilities on your balance sheet. You don’t have any monthly payments, saving you the headache of owing other people money, and you get a portion of those unpaid invoices coming in.
Many factoring programs don’t have minimum or maximum contract lengths, so you won’t be tied to them for unreasonable amounts of time like you would with a traditional loan. You can pick which invoices you want to factor and leave the rest. Factoring grows with you, so your access to funding grows as your sales do. The terms are flexible and entirely up to you.
The cost of factoring is more reasonable than many of the interest rates on business loans. Some fees are as low as 1.5%. While it varies by industry, volume, amount of the invoice, and several other factors, you can rest assured that you’re saving money over obtaining financing in different ways.
Stay in Control
With factoring, you are in control of your finances. You can choose which invoices to factor and then spend the funds you receive according to your own business plan. Many lenders loan money contingent on how the financing is used, but factoring companies don’t dictate any of this. You can spend the money on what you want, because factoring companies don’t have requirements, meaning you focus on what is most important to you.
Waiting for customers to pay invoices is stressful. Chasing them down and hounding them for money is the least exciting part of your job. Letting someone else do it so you can move on to more critical things relieves a lot of stress. Keeping up with some cash flow on unpaid invoices helps you make payroll, pay bills, and grow your business without worrying.
Your Bottom Line
Factoring can have a significant impact on your bottom line. Increasing profits and funding growth have enormous implications for the future of your business. Your customers need to be able to leverage incentives like discounts for paying early and bulk pricing. You should be able to use your profits for increasing staff, making payroll, and expanding your marketing efforts.
While you only get paid a portion of what your unpaid invoices are worth, you can use factoring to alleviate some of the pain of unpaid invoices so that you can move on to more impactful sales and repeat customers.
To use factoring, you don’t need good credit, a certain number of years in business, or strong sales. Factoring companies rely on your customers to pay outstanding invoices, not your ability to turn a profit. The point of using factoring is to use the money you save to increase profits, so you shouldn’t have to worry about qualifying. You just have to worry about getting money in the door to build or rebuild your business.
Offer Better Terms
Because you get flexible terms from your factoring company, you can offer more flexible terms to your customers. Offer better terms to larger customers without damaging your cash flow. You already know who your high-risk customers are, so you can more confidently extend these terms to candidates who have a higher likelihood of paying.
With professional accounts receivable management, you can save time, reduce expenses, and improve turnaround time on unpaid invoices. A factoring company can handle the paperwork, follow up, collection, and payment of all of your invoices, eliminating your headache.
Reduce debt and increase cash flow by using this alternative to traditional loans. More businesses today are turning to business factoring to pay their bills, increase sales, build their business, pay salaries, keep on top of bills, and still maintain a good credit rating. Business factoring is fast, easy, and convenient.