Invoice Factoring Can Boost Your Business
Not many people are aware of the benefits of invoice factoring. Some are completely unfamiliar with the concept, or how it could help them. In the simplest of terms, invoice factoring is a method of borrowing funds against outstanding invoices. It involves withdrawing money from the value of the invoices that are scheduled to be processed in the near future. It is a funding solution that allows you or your business to sell your invoices for immediate liquid cash. Put simply, invoice factoring is a straightforward way to obtain the funds you need and get them paid back quickly.
Invoice funding is quite useful for those businesses that face regular cash flow problems. After all, slow-paying clients and customers can sabotage your business operations and expansion plans. Invoice factoring can be used as a growth tool for your small business. Without beating about the bush any further, here´s how invoice factoring can effectively boost your business.
- It is a low-risk borrowing option
Invoice factoring is a much lower risk borrowing option than many of its counterparts. Contrary to popular belief, invoice factoring is not a loan. Invoice funding doesn´t add debt to your clean balance sheet. Invoice factoring works differently—the funds you borrow are imposed against your outstanding invoices. What does this mean? Well, this indicates that you will not lose your business or your home should your business face financial difficulties. After all, you won´t need to put any collateral up when dealing with invoice factoring. Your providers will take their cut from your outstanding invoices; they will only dip into funds that you can actually afford to spare.
A bank loan can be extremely heavy on the wallet; the high-interest and immediate debt incurred with obtaining a loan can stall your progress and dampen your spirits.
- Invoice factoring prevents you from racking up debts
With invoice factoring, your business will not have to deal with mounting debts. With invoice factoring, you won´t have to accept money that you might or might not be able to repay when you profit in the future. You will only be accepting money on the basis of invoices you are already owed. You won´t have to deal with high-interest loan payments when dealing with invoice factoring. In a nutshell, invoice factoring basically gives you access to money that will be yours in the future, prematurely.
- Helps keep your business fully operational
Most businesses face regular cash flow problems. Now, traditional speaking, many companies often take out loans in a bid to ensure the smooth operation of their businesses. There is a huge risk involved in taking out loans as one can easily fail to make minimum loan payments; it is easy to get buried in interest too. Failure to make regular payments can be disastrous and it can end up costing you your company. However, with invoice factoring, you get access to immediate cash by selling your outstanding invoices. And with the injection of immediate cash, you won´t have to take out loans to meet your operational costs; you can pay your employees, pay your taxes, and invest in advertising and marketing too.
- Gives you access to financial professionals
When you deal with invoice factoring providers, you gain immediate access to liquid cash. However, that´s not where the benefits end; you also get access to a team of financial professionals who take care of your invoice ledger for you. The factoring agencies or providers take on the responsibility of collecting the lump sum amount you are owed. Hence, you won´t have to deal with the stress of collecting what you are owed, allowing both you and your staff members to focus on tasks that require immediate attention. You will not have to deal with strenuous, time-consuming paperwork.
- Invoice factoring helps you grow your business
Invoice factoring can help you grow your business and take on huge opportunities, especially those that help your business expand exponentially. Let us take a hypothetical case—let´s say that your business comes across a potential new customer, a big company. However, it appears that taking on the job would require using three months of your income.
In such cases, many business owners would run away from taking on such a risky undertaking. However, with invoice factoring, you won´t have to back out of such opportunities. You can take on the lucrative job without worrying about funds for various needs and for other small jobs, helping you not only maintain your current customer base but also putting you in a position to take on big jobs that can help your business expand tenfold.
- Easy access to money
As we mentioned earlier, invoice factoring is not a loan. It is far easier to access immediate cash through invoice factoring than through obtaining loans. For instance, your business service would have to meet several criteria to qualify for an unsecured loan. Not only would you have to put up collateral, you would also need to boast of excellent credit history.
If you have a small business, you must be well aware of how difficult it is to even acquire micro-loans. Plus, if you run a small business operation, chances are that you already have your hands full with various business operations. You won´t have the luxury of time to even file for loans.
Factoring agencies don´t need you to have a good credit history; you don´t need to have a sound financial history to factor your invoices. Most of the factoring providers and agencies only focus on the creditworthiness of your customers. Therefore, the more secure your customers are, the better rate you will get from the factoring agencies.
In addition to that, invoice factoring involves far less paperwork than loan applications because it is an inherently simple process.