The Benefits of Finance Invoice Factoring

Companies with few resources and slow-paying customers can benefit from factoring during a slow period because it alleviates cash flow concerns.

FREMONT, CA: A growing business relies on cash flow to cover costs in its operations. Yet it is rare for a business not to experience slow or uneven cash flow at times. Sometimes, it is possible to miss out on opportunities to grow a business due to poor cash flow. Some cases may lead to a company going out of business due to the inability to pay its debts.

It is possible to smooth out cash flow challenges by factoring in invoices. Business-to-business (B2B) companies typically use factoring services when they sell unpaid invoices to certain third parties, such as factoring companies, which retain a percentage of the original invoice amount. A small company's credit history is less likely to deter factors from providing funding because factoring is more likely to provide fast cash access than bank financing.

A business may consider invoice factoring for a variety of reasons.

Fast receipt of cash: Third-party factors typically pay significant portions of invoices within a few days - sometimes as early as 24 hours. In particular, companies with timely cash flow can rest assured that they can cover immediate expenses.

Removal distractions: Small businesses often have trouble collecting payments from slow-paying customers and overdue bills. Owners who follow up on late invoices cannot focus on other customers or higher-value activities. The tedious time spent chasing down a delayed payment can harm morale in an accounts receivable department.

Quicker approvals: Invoice factoring is much faster, and factors provide more cash than banks because of how the arrangement works.

Less scrutiny of a founder's personal credit history: A company's founder's credit score is often a factor in obtaining a bank loan. Many small business owners encounter this issue, especially if they have relied heavily on credit cards for funding. The credit rating of the customer placing an order is more important to an invoice factor than the credit rating of the company whose invoices it purchases.

New customers and accounts: Small businesses may be unable to meet the payment schedules of some very large, reliable customers. A large, potentially fortune-changing order, such as one from a government entity or Fortune 500 company, might be complicated by payment timing problems. They may be able to fulfill these new orders with invoice factoring.