Sometimes, a business wants working capital to help fund growth or to pay bills. One way to do this is by a process known as factoring invoices. There are several benefits and advantages to this. Sometimes, it can be difficult to turn to the bank, depending on the situation. By factoring invoices, a business can have cash in hand quickly to pay off any outstanding bills. These types of options have become rather flexible and over time, they have also become somewhat affordable as well. Here are some benefits of factoring invoices.
1. Quick Cash When You Need It
This is what it’s all about. Sometimes, it can take far too long to receive money from customers. However, as a business, it will still have to pay for other things. Being strapped for cash and at the mercy of non-payment from customers and with little to no help from a bank, factoring invoices is the answer. The factoring process is quite fast; a business can receive money within a day or two, but many times, it can take less than twenty-four hours, if approved. Initially, when going through the setup process of the factoring application and all the associated paperwork, it could take several days. However, compare this to the weeks and even months a bank takes to decide on business loans and you can see that there’s no comparison, especially when time is of the essence.
2. No Long-Term Contracts
Using factoring today, the terms are very flexible and there are no long-term contracts. Your business can choose whichever invoice it wishes to factor and however often as well. As your business grows, your access to funding will grow as well, so it’s a really convenient option to use when needed.
3. Bad Credit Is Not An Issue
Whether your business has good or bad credit is not relevant in factoring invoices. In fact, it’s not the business that’s really looked at, but it’s your customers. The factoring company looks at them to see the history of customers paying their invoices. So basically, even if you have not been in business all that long with no strong financial history, it does not matter that much since you may still qualify.
4. Leverage Factoring To Increase Profits
Did you know that if factoring is used wisely, you could increase your profits? In fact, some companies do just that (or fund growth). For example, let’s say that you may not have cash in hand, but because of factoring invoices, you receive funds. You could use these funds to gain discounts for early payment or gain discounts from suppliers by placing bigger than normal orders. Though factoring invoices will still cost you, this cost can be offset with gaining discounts or saving money in other ways and in other areas so that there is a significant difference in favour of your business.
5. It’s Not A Loan
Remember, factoring invoices is not a loan. The factoring company in effect is buying your invoice and offering you cash for it. This does not show up as liabilities on your balance sheet, whereas a bank loan will. So, instead of borrowing, using factoring lessens the balance sheet debt, causing a lower debt to equity ratio.
6. Factoring Relieves Stress
By factoring invoices, it can relieve so much stress because now, you have cash in hand. If customers don’t pay you, how are you expected to pay your bills? Waiting and chasing customers causes stress, anger and even heated exchanges with customers. This is now completely eliminated. Now you can pay your bills, taxes or make payroll on time without incurring any penalties or late fees which will cost your business unnecessary loss of money that was no fault of your own.
Research the factoring company that has experience in your particular industry. Get quotes from several reputable factoring receivables financing companies before you sign the dotted line. Make sure that you feel happy about their customer service as well. You want to be treated professionally, after all. Remember, this may be an ongoing process, so make sure that you get it right and you won’t have any regrets later.