How To Use Invoice Factoring For Your Business’s Benefit

The Benefits of Invoice Factoring

Cash flow is a critical component of any profitable business. When cash flow slows to a trickle, bills and payroll may not be covered, inventory cannot be bought, and growth opportunities may be lost. The business may even stop functioning. These days, many firms are finding themselves in difficult situations because of the COVID -19 pandemic. At the same time, they may be having trouble arranging for a conventional loan. This is the time to consider invoice factoring.

Putting Invoice Factoring To Work For You

Invoice factoring is a financing tool uses by many savvy businesses. This is how it works: A business sells its accounts receivable (sales yet to be paid) to an outside financing firm and receives an immediate payment of cash for the sale. The finance firm pays back a generous portion, usually over 90%, of the total value of accounts receivable to the selling business.

Why would any business do such a thing? It’s simple: By selling the invoices, which may not be paid for some time, the business receives almost instantaneous cash. Both the selling firm and the financing firm walk away satisfied: The invoice seller maintains cash flow and the buying firm gets the opportunity to collect to full 100% of the invoice total. Invoice factoring can be great for many small businesses, especially those who often wait 30-90 days to receive payment on their sales.

Benefits of Invoice Factoring

In addition to an immediate cash flow, the many benefits of invoice factoring offer other benefits, including:

  • Invoice factoring is not a loan, you don’t have to pay it back
  • It is available to most firms, even those just starting up
  • You can sell any percentage of your outstanding invoices, not necessarily 100%
  • You use the cash as your wish, for any aspect of your business
  • Administrative invoice-collection burdens are eliminated and farmed out entirely to another entity

Keep Your Business Focus on Cash Flow

In summary, healthy businesses have strong cash flows. Invoice factoring can be a sensible way for many businesses to have access to working capital without taking on a loan that must be paid back with interest. Whether it’s paying expenses, meeting payroll, growing the customer base, or taking profits, invoice factoring may be just the financing option that will serve you best. It can be an excellent way to keep your firm healthy, especially during slack business times.

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