Discovering Invoice Factoring Financing and Its Benefits For Your Business

It is expected that most businesses will face financial struggles within the first year. Thiscan be especially stressful if you are not an experienced entrepreneur. If you area contractor, financial pressure is especially stressful because it impacts your ability to take on other jobs. The case of a contractor not being paid means that materials cannot be purchased and you cannot grow your business.

 

At Nova, we understand that most small businesses are under a lot of financial pressure but it is also not normal to let this financial pressure affect how business decisions are made. So, if you are currently in this type of situation, there’s something you can do. You may think that borrowing money from banks and financial institutions is your only option but you can also sell your receivables. Selling your receivables is called invoice factoring and it is a well-known method to finance a business.

What is invoice factoring?

Invoice factoring is a factoring finance method wherein you will sell your accounts receivables to a third-party called the factor. Receivables are achieved when you sell your products and services to your customers. You exchange your goods for the amount they are going to pay in the future. Most of the time, vendors give terms to customers so they can enjoy discounts for paying the receivables early. However, not all customers can pay early even with discounts. There are times that you will have to wait for more than 30 days just to get their payments. As someone who is continuously running a business and trying to grow, this can affect your cash flow and your overall business decisions. This is one of the main reasons why companies are choosing to sell their accounts receivables in exchange for funds that they could have gotten from paying customers.

So, what are the benefits of invoice factoring financing?

First and foremost, it allows you to get the funds you need for your business. The main purpose of why you are selling your receivables is to get additional money to keep your business running. In regards to a contracting business, this means that they can purchase new materials and take on larger jobs and that the contractor is not waiting for the client to pay outstanding invoices to do so.

Additionally, if a contractor is paid consistently and on time, they are able to buy materials, take on new jobs, maintain a good reputation in the industry and grow the business organically. By using a factoring finance method, you’ll be able to get the amount you need in your hands.

Secondly, invoice financing reduces your hassle of asking your customers to pay. Invoice factoring is selling your accounts receivables to a factor. This means that you are transferring the responsibility of an AR owner. The factor becomes the owner of the receivables so he/she should be the one contacting your customers to pay. This saves a lot of time and stress that comes from communicating with customers.

Finally, invoice factoring will only cost you around 10-20% of the account receivable plus the factoring fee. If there are variances as to the amount collected, the money will be deposited back to you. Compared to the amount you are going to get, a 5-10% discount is not that big especially if you really need the funds for your business, you are able to take advantage of discounts and improve your reputation.

How Receivables Finance Gives You Working Capital For Your Contracting Business

Are you a contractor currently waiting on invoices to be paid so that you can pay clients? Receivables finance is your solution!

At Nova we do not believe in adding loans to your existing debts. We do believe in being resourceful and thinking of other ways that you can add funds to your cash account. We understand how important it is for a contractor to buy new materials and take on new jobs. Our receivables finance facilities will allow you to relive these financial burdens.

So how does it work? Receivable financing allows you to gain funds for your business by selling your accounts receivable. As a factor, Nova can buy your accounts for a discounted amount. Most of the time, you will get 80% of the total amount of your accounts receivables advanced to you when you submit invoices. Whilst, there are factoring fees that are attached to this service, compared to the amount you are going to receive, the discount and fees are worth it so that you can pay outstanding payments on time and maintain a reputable reputation as a contractor.

Working capital can be defined as the money that you require to keep your business running on a daily basis. The amount that your business requires can be computed using your current assets and your current liabilities. So, how can receivables finance help you get the working capital that you need?

First, receivables finance can provide you with a significant amount of cash, quickly. If you are short on cash and you need actual money to buy your inventories or pay your existing liabilities, you can rely on receivable financing. Your accounts receivable will be converted into cash that you can utilise for your everyday business activities and eventually for business growth.

 

Additionally, receivables finance allows you to reduce your current liabilities and improve your credit rating. Some debts can impact your business in a negative way if they are left overdue and in order to maintain or establish a good credit rating so banks and financial companies will lend you money in the future, you need to stay on top of outstanding debts. With receivables financing, you can pay your creditors now without applying for a new loan because it is never a good idea to pay a loan for another loan.

Overall, receivables finance can assist contractors to stay afloat and expand by providing you with working capital.