Using Invoice Factoring
Among all the problems associated with the running of a small business, lacking cash flow is one of the most prevailing. Are you experiencing it right now? If money is short and you need access to extra funding to expand your business or to avoid collapsing, there are various approaches you can employ to ensure you have extra money. One of the least known yet very effective options you can consider is referred to as invoice factoring. Read the piece and learn more regarding the process, the advantages it comes with, as well as the right way to do it.
First, let us know what invoice factoring is. This procedure consists of a business trading its invoices to a factor (or third-party establishment). The firm sells these invoices at a reduced rate. One thing to know is that factoring is not to be confused with a business loan – they are two different things. It gives the business owner an advance on payment owed from unsettled invoices. Additionally, they give them working capital that business owners can put into the company quicker than they would if they continued to wait for clients to pay them for their products or services. The process is straightforward. You only need to invoice your clients for goods or services, send the invoice specifics to an invoice finance provider, have a face value percentage of the invoice and the invoice collection procedure is handled by the invoice finance provider. After the clients pay their invoice, you receive the remaining value of the invoice. The sole exception is that a service fee is taken off as payment for the invoice finance provider’s service.
Invoice factoring is similar to any other kind of business financing. It may be the most sensible thing to do now but not the right option for another period. Before you choose to go through this route, it is advisable that you know the pros and cons that come with this financing option.
In many cases, the advantages of this process offset the possible cons. For instance, taking this route offers you access to more working capital that assists you in keeping your business running while you wait for clients to pay up. It allows you to make the best use of growth opportunities that can improve profitability of the business. Invoicing factoring is an excellent substitute to loans and borrowing as well. As a small business owner, you are likely to have a hard time accessing credit services through a traditional lender.
In case you find this approach suitable for your business, don’t pick an invoice finance provider without first researching. Understand the process and look at their online reviews and see what clients say about their services before seeking their assistance.