Consulting firms typically recruit some of the most experienced, qualified professionals in the workforce. However, the cost of employing those individuals over the long term can be very high especially if the job requires extensive training. Consulting professionals also need ongoing education classes to remain up-to-date on the latest changes to their job descriptions which can also be expensive. Trying to meet these expenses can be very difficult particularly if clients wait up to two months to pay their invoices. The good news is that consulting companies can take advantage of invoice factoring to free up access to cash.
How Invoice Factoring Works
Invoice factoring is simply an arrangement where you sell your customers' invoices to a third-party company called a factor. The factor pays you most of the invoice value right away and then begins collecting on those same invoices. After your customers pay the invoices in full, the factor deducts its fee and then sends you the rest of the funds to close the account.
Why Factoring is a Good Fit for Consulting Firms
You won't have to pressure your customers for faster payment. Sometimes companies that are dealing with a cash crunch have to resort to asking their clients to pay invoices sooner. This can be a risky tactic, though, since some customers may decide to search for work elsewhere. With invoice factoring you can avoid having to take this step and potentially alienate your clients.
You can avoid taking on additional debt. Business debt is a normal part of operation for many consulting companies. But if your company credit limit is already stretched, you won't want to add more debt just to increase your cash flow. With invoice factoring, you won't have to submit to a credit check and you don't have to open another line of credit.
Qualifying for Invoice Factoring
One of the best things about invoice factoring is that you don't need to do anything in particular to qualify for it. The most important qualification is the creditworthiness of your customers. If your clients have good payment record your factoring agreement will probably be approved. While you don't need good credit your business will need to have a clear record with both the IRS and the government.
If your consulting company is need of increased cash flow you might want to consider invoice factoring. This arrangement can help you get quick cash without taking on new debt and without waiting for a long period of time.
