Is your business facing a cash crunch? Do you spend days wondering when you'll receive payments from your customers? You can benefit from using invoice factoring to expedite your outstanding invoice payments. Unlike a bank loan, invoice factoring doesn't require you to open a new line of credit or take out a loan. The key to making it work is knowing how and when to use invoice factoring to grow your business.
What is Invoice Factoring?
Invoice factoring is an interest-free financing option that allows you to receive an advance on your invoices. For example, if you send out invoices on a net30 or net60 pay period you might have to wait a month or two to receive those payments. However, if you use invoice factoring you'll be able to get the bulk of those invoices in as little as 48 hours.
In exchange the factoring company agrees to collect on the invoices for you saving you the trouble of following up with your customers for payment. After the invoice is paid you'll get the remainder of your balance minus the factoring company's fees. Outside of the factoring fees, you won't have to pay any additional charges such as loan origination fees or interest.
Using invoice factoring can help you in two key situations:
1. Cash Flow Problems Due to Slow Payment
When you have slow-paying customers your business might fall behind on necessary expenses. This can be particularly difficult if you have weekly employees who need to get their paychecks regularly even if you haven't yet been paid by your clients. Invoice factoring allows you to get most of your payments right away so you'll be able to avoid cash flow issues while you wait for your invoices to be cleared.
2. Rising Business Expenses That Need Payment
All small businesses have necessary expenses such as repairs, improvements and supplier costs. Unfortunately, these expenses continue to rise regardless of how much income you bill for the month. If you're between payments and you need to cover some immediate expenses, invoice factoring can give you the funds you need to meet those obligations without endangering your good credit with utility companies, suppliers or contractors.
Nearly every business runs into funding problems at some point. Successful companies are able to use financing options to weather these difficult times. Understanding how and when to use invoice factoring can help your business continue operating without an interruption even when you're waiting on customer payments.
