When looking for extra capital for your business to improve cash flow, business owners have several choices. Short-term loans, peer-to-peer financing and other conventional ways to raise finance can be a bit hard to get, especially with the growing unrest in the financial market. Invoice Factoring or simply ‘Factoring’ differs in several ways with the above mentioned sources of finance and is considered to be one of the fastest ways to muster fresh capital for your business. It simply lets you outsource your bills receivables or invoices to financial companies known as factors. The invoices are often sold at a discount to the factors which in turn provides immediate liquidity of your semi-dormant assets without having to wait for the payment or worry about chasing the clients. Here are some of the best ways how various businesses benefit from Invoice Factoring.
- Source of Quick Cash
The more you improve the cash flow of the business the more they grow. It is common for rapidly expanding business organisations to experience improper cash flow due to the unpaid invoices. This becomes a special problem as most of the company’s resources and energy is diverted towards debt collection and to find sources of finance. When the unpaid invoices are sold to the Factors, the companies immediately obtain the cash they require to keep their business running and getting free from chasing debtors.
- During Unexpected Financial Crisis
In a business financial jeopardy is common and can happen in the most unexpected of times. The unplanned absence or exit of an important employee or any sort of natural disaster can lead to operational halts in the business. In such time, seeking for financial help from banks might get totally out of the question. It is common for most companies to muster working capital through factoring their outstanding invoices. Outstanding invoices are thus an important resource in contingency planning.
- New and Seasonal Businesses
All the new and seasonal businesses are the major beneficiaries of Invoice factoring. As banks are more apprehensive of lending out loans to new and seasonal business organisations, Invoice Factoring is the best way to introduce new capital for the much-needed business expansion. This not only provides them with a quick liquidity of their assets but also relieves them from additional debt and a long list of debtors. Seasonal businesses are the ones that require the most capital due to their business being limited to a specific time of a year. Invoice factoring works as a charm for such business owners by providing them with the working capital they require to sustain their business during the lean season.
- Specific Invoices Can Be Selected
The client relationship is one of the most important aspects in a business organisation and selling all the invoices might prove disastrous for your business. Invoice factoring provides owners the discretional powers to choose the specific invoices that they think will not cause them the loss of an old and trusted client. However, the invoice factoring companies often assess the sales records of the company before buying their invoices.
- Frees Businesses From The Burden Of Debts And Potential Debtors
While invoice factoring provides businesses with a quick capital, it also provides some additional benefits to the business owners. Loans and other conventional finance while seem to appear as viable options are hard to secure and add an extra burden of debt. Invoice Factoring on the other hand is more easily available and doesn’t add to the existing debts. It also frees organisations from dormant debtors and eliminating the problems caused by late payment of invoices.
Invoice Factoring is simply the selling of the unwanted outstanding invoices to a 3rd party that pays you immediate cash in return. The above factors are definitely exemplary of the various benefits that invoice factoring provides the small businesses with, hence becoming a boon for most new and small business organisations.
Luke Peters likes to read various books, articles and other material related to finance, management, trading and marketing. His expertise on the various topics has made him a contributor for several websites and blogs.
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