Your customers' invoices are of little benefit to you if these accounts are left unpaid. During the time that you await payment, you are left to figure out how to make your cash flow stretch to meet your financial obligations.
When you cannot wait a month or longer to be compensated by your clients, you can solve your cash flow problem with factoring. Factoring helps with unpaid invoices in these significant ways.
Perhaps the most appealing aspect of factoring involves how quickly you can get cash for your unpaid invoices. Instead of waiting for 30, 60, 90 days or longer to pass, you can get your money in as little as a few days.
By getting money quickly, you can turn your attention to more urgent matters that come with running a business. You are free to use the cash to:
- Pay your employees
- Replenish inventory and office supplies
- Purchase advertising space
- Pay bills like insurance and utilities
- Attract new clients
- Fill upcoming orders
When your cash flow runs dry because of outstanding accounts receivable, you cannot accomplish these important tasks. Rather than wait months to be paid, you can get the money you need today by factoring your unpaid accounts.
No New Debt
Factoring is not a loan. In fact, it can be much better than a loan because the money you receive is based on your invoices' values and does not require that you go into debt. You also are not bound to a long-term obligation as you would be with a bank loan.
Factoring also does not require that you make monthly payments and take on additional interest on top of the principle extended to you. The only fees you pay with factoring are the discount at which you sell your invoices and the fees deducted by the factor after the invoices have been paid in full.
Easier Credit Terms
Banks will scrutinize your personal credit and that of your business when you approach them for a loan. If your credit is less than perfect or you have yet to establish good business credit, you most likely will be turned down for financing.
With factoring, your credit does not come into play when you submit an application. The factor will instead look at your invoice customers' credit and payment histories to determine if they can pay their accounts in due time.
When you sell your unpaid invoices, you will not be required to verify the accounts or vouch for your clients. The factor will take on this duty for you, letting you focus on running your business.
Once the factor verifies the accounts, you can expect to receive up to 80 percent of their value in as little as two or three days' time. You avoid the lengthy scrutiny that some banks employ when they check your credit or have your collateral appraised.
Options for Invoices left Unpaid
Despite factoring your invoices, you and your factor may still face the dilemma of what to do if one of the accounts is left unpaid. After the deadline has passed for payment, the factor may give you the option to:
- Buy back the account
- Exchange it for another unpaid invoice of similar value
- Leave it with the factor and allow it to be sold to a collection agency
These options let you protect your cash flow while you deal with customers that have yet to meet their account obligations. You may not necessarily have to repay the money yourself if you cannot afford to do so.
Unpaid invoices can be a detriment to your company's finances when you need cash now. You can get money quickly and deal with these unpaid accounts effectively by relying on factoring.