invoice factoring

Using Invoice Factoring as a Source of Quick Financing

in Business

No matter the size of your business or the services it offers, the short and long-term goals tend to be the same – a fast and sustainable cash flow. Unfortunately, this isn’t the kind of thing that happens overnight. As a matter of fact, a business can go many years without experiencing a cash flow boom, which often hinders its ability to move forward and evolve.

For example, while a business might want to sink resources into a marketing strategy that they know will work, it would take time and money that they don’t have thanks to a relatively slow cash flow. They instead end up being unable to take risks because doing so means they wouldn’t be able to keep the payroll going. Fortunately, this is a problem that invoice factoring can solve. So, what is invoice factoring exactly? It’s an effective means of quick financing that could give businesses the push they needed.

A means to quicken the cash flow

There are plenty of businesses out there that utilize invoices with relatively reasonable net terms (around 30 to 90 days). This means that their customers are required to pay within that timeframe, which generally results in payment arriving right before the deadline. It’s understandable, as the payment still comes within the timeframe. Unfortunately, this business practice often translates to a less than stellar cash flow. What if there was a way to get money out of unpaid invoices the moment you send them out? Even if there were a small percentage of the total discounted, many small-to-medium sized businesses would very likely jump at the chance to get their money straight away. This is the allure of invoice factoring, and why it’s a popular way of boosting cash flow without doing anything too drastic.

How exactly does it work?

What makes invoice factoring possible are agencies dedicated to this service. A business utilizes these agencies by selling them the unpaid invoices. How big the percentage is taken by the agency depends on the agency itself, but there are some surprisingly affordable ones out there. As a matter of fact, there are certain special deals where your business might even be able to keep one hundred percent of the invoice value.

By selling the agency these invoices, your customers will then have to direct their payments to the agency. This has the benefit of giving you more breathing room to interact with more customers because the agency not only purchases your invoice but also spares you the trouble of collecting payment from those customers.

Is a quicker cash flow really that important?

For small-to-medium sized businesses, the answer is a resounding yes. Let’s take the example of the business with the idea of a brilliant marketing strategy, yet facing the dilemma of a lack of resources to push through with it. Because of slow cash flow, they’re forced to move at a snail’s pace, unable to move forward with what they’re planning because they never have enough money to accomplish it.

Now imagine the same business taking advantage of invoice factoring. They’re able to sell their invoices to an agency quickly, and they’re able to get their money back right away. This speeds up cash flow to a rate that they’ve never experienced before – and suddenly they have enough revenue to push through with their marketing strategy. With the campaign underway, the business experiences a great amount of exposure and popularity, which then leads to them to receive even more customers down the line. Thanks to invoice factoring, they’re able to evolve as a business, and perhaps they might not even need invoice factoring moving forward. The point is, however, that they took advantage of it at their moment of need and they were able to make progress because of it.

A relatively risk-free endeavor

What are the risks that this type of business model entails? This is probably the question that many businesses interested in utilizing this type of factoring will ask. Surprisingly, the company that takes the most risk from this type of endeavor is actually the invoice factoring agency itself. After all, they are the ones who are basically picking up the tab. If for any reason the customer is having trouble making the payments, the ramifications rest on their shoulders. This is often why agencies mostly go for companies whose customers have a habit of paying within the timeframe.

While the agency gets a cut, it does not change the fact that they will pay your business for an invoice that hasn’t been paid yet. This means that they will be the ones who are taking the real risk while your company is able to get money from unpaid invoices to immediately start funding other projects. As a matter of fact, it isn’t a stretch of the imagination to say that if you have a quality agency working with you for invoice factoring, it’s practically risk-free.

What are you waiting for?

Quick financing is something that can benefit most companies whose size hasn’t completely ballooned yet. Businesses which are at a crossroads, but are unable to make the leap forward to real progress because the revenue coming in just isn’t enough. The fact that invoice factoring provides such a fantastic solution can’t be underestimated.

To conclude, it’s also important to note that this type of solutions has existed for many years – and for a good reason. Many businesses of all sizes have most definitely benefited from the advantages provided by quality invoice factoring. This is because in most cases, all those businesses needed was a little boost in revenue so that they could finally push on with important projects and campaigns. Unfortunately, if they had taken those risks without a solution like an invoice factoring, they might have lost the company itself. Factoring agencies provide the solution without the game-breaking risks normally involved in the process.

1 Comment

  1. It’s also worth adding that factoring has the effect of releasing a lot of cash from your outstanding sales ledger in one hit. For example, a sales ledger of £100K of outstanding, unpaid sales invoice could release £80K+ of cash in one go. Thereafter you get the additional benefit of invoices being effectively paid (at least the large proportion of their value) immediately you raise them.

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