It’s hard enough if you are operating a small business that offers customers a 30- 60 day grace period on payment simply because of a lack of working capital. However, invoice factoring can come in handy by giving your business the lifeline it needs. It is a form of factoring finance where the entity sells its invoices to a third party (factor) at a discount, usually between 70-90% of the total invoice. The factor is left to chase after payments from customers and makes a profit in the event of full payment.
Upon the entity selling its invoices, they receive immediate cash for their operations. In case you’re wondering what factoring finance can do to your business, read on.
Immediate Cash Flow
As a small entity, you may not have the financial muscle or assets to acquire business loans, and if possible, they usually take more extended periods to process. Such lapse of time may spell doom to your business. Invoice factoring as a form of factoring finance comes in handy and ensures that business operations are afloat. You don’t have to wait for your customers to pay you back to sustain your business.
On-going Cash Flow
If it makes sense for your business ton consistently have on-going cash flows, you could cement your relationship further with a factoring company to ensure constant flow, thus not hampering operations.
High Approval Chances
Credit score, loan history, and collateral are the least of a factoring company’s worries when it comes to factoring finance. They are more concerned with your customers’ payment history and their ability to pay. It’ll give them a pretty clear picture of the kind of risk they are getting into. Therefore, if you exhibit a low credit score or other underlying aspects that may dent your financial history, Factoring finance may come across as an essential mode of business financing.
Following up on payments sometimes proves to be hectic and time-consuming. Outsourcing such functions to a factoring company free the entity’s time to deal with other essentials or tasks on its plate.
Productive Customer Relationships
Debt collection can be frustrating and downright tricky. Handling over such responsibilities to a third company absolves you, and you don’t have to be the bad guy anymore, hence promoting positive and strong relationships with your customers. It may also help you create a long-lasting relationship with your clients too.
Not all sources of financing work well with businesses. As a business owner, you’ll need to pinpoint what works well for you. If factoring finance as a source of business finance works well for you, by all means, go for it.