In the world of Internet consulting, cash flow can be hard to come by. Clients may want their work done right away, yet take up to 90 days to submit payment for their invoices. If this has happened to you, your company may have suffered as a result of having decreased cash flow. This situation can be particularly worrying if you have to deal with an unexpected business expense before you receive payment for your services. Invoice factoring, though, can give you the funding you need to meet these challenges successfully. Why is factoring a good idea for Internet consulting businesses?
What is Factoring?
First of all, it's important to understand exactly what invoice factoring is. Put simply, factoring is a financial arrangement that gives you the option to sell off your invoices for a lump sum partial payment. The factor sends you most of the invoice value in cash right away and then remits the rest after your customer pays the invoice in full. Typically, factoring companies charge only a few percentage points in fees for this transaction.
It's also important to understand what invoice factoring is not. Factoring is not a loan, since you are not required to repay the funds and you are not required to meet credit criteria to receive it. Factoring is also not a long-term cash flow solution, because the amount you can factor depends on the amount of work you're able to invoice each month.
How Can Factoring Benefit Internet Consulting Firms?
Internet consulting firms often need to turn out work quickly, while maintaining the ability to adapt to changing client requests. These adjustments may call for additional capital at sudden times, which can put a strain on the business's cash flow. Invoice factoring can be an ideal way for these companies to get access to increased cash flow without going into debt to do it.
Applying for Invoice Factoring
If you decide to pursue invoice factoring, there are a few requirements you'll have to meet in order to apply. While you don't have to pass a credit check, your clients do. The invoices you factor must be from creditworthy customers who have a solid history of paying their invoices on time. Some factoring firms may refuse to grant approval if your customers have a bad credit record, while others may increase your factoring fee for these invoices.
You may also have to assume liability for any unpaid invoices that your customers never pay. This is an important consideration when you're deciding how many invoices to factor, since you may be required to pay the balance yourself in this situation.
Should you use invoice factoring for your Internet consulting firm? The answer depends on your company's financial needs. But, you may find that this funding source is perfect for your current cash flow concerns.
