Using Invoice Financing to Improve Cash Flow

Invoice financing is a fast and easy way for businesses to be paid the cash they are owed on outstanding invoices. For many small to medium sized businesses, outstanding invoices can become problematic in that they tie up cash in incomplete transactions. If you have established customers who are creditworthy but slow to pay, you may have financing options. Whether you need access to that money to cover expenses, or for growth capital, reaching out to a factoring company may be in your best interest.

Understanding How Factoring Companies Work

Factoring improves cash flow for small businesses by offering nearly immediate access to cash. A factoring company will purchase a business’ outstanding receipts. No matter what your industry is, the steps to establishing a relationship with such a company will be similar.

The first step in invoice financing is establishing an account with a factoring company. This is a simple process that usually takes less than a week. After determining which invoices your business will sell to the factor, your company will receive its first advance. Depending on your industry, this amount is usually a majority percentage of the money due on the outstanding accounts.

The factoring company will collect the outstanding debt from your clients. This is one of the few downsides in this method of financing, in that you abdicate your control over your customer’s experience to a third party. This is one of the many reasons why it is important to choose a factoring company wisely.

After your clients have paid the factor, you will receive your factoring rebate. You have then closed the transaction. The amount of the factoring rebate is the remaining percentage, less the factoring fee, which will be withheld by the factor. Invoice financing is an easy and fast way to get the money you are owed into your hands.

Consulting a financial advisor might help you to find a factoring company that will meet your financial needs and the needs of your customers. Not all companies service all industries. Find one that can help your business with terms that are agreeable for you.

An Ongoing Relationship

Some businesses choose to use factoring companies on a regular basis. This lasting relationship can also mean better factoring rates and lower interest as your business becomes established. Creating an affiliation with a factoring company will make them part of your financial team. Once you have done this, invoice financing can be an ongoing and predictable cash flow for your business.

 

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