To achieve steady growth, your business must have strong cash flow. With regular cash coming into your business from the sale of goods or services, your business is on the right path to attaining growth. Yet sales, even strong sales, are not always enough to enable or promote business growth.
This is because many hindrances, such as long customer payment timelines, debt obligations, and business operations costs (including payroll, production, overhead and more) can interfere with your company’s ability to grow as fast as you’d like. As you can imagine, this is commonplace for many businesses.
Without a way to stay ahead of your financial obligations rather than keep up with them, your business can feel like it is running on a treadmill. A business can only truly grow if it has money left over after it has already met its financial responsibilities. That is, after it has paid its bills. Otherwise a business is likely to only continue to break even.
How can factoring advance your small business?
Factoring receivables is a way that those in the Business to Business (B2B) space and others can get on top of their finances and actually achieve business expansion and growth rather than just breaking even. But before we dig into the details, let’s take a step back and look at how factoring invoices works to see exactly how it helps businesses get ahead.
Factoring receivables solves one of the largest barriers to business growth: slow customer payments. Your customers probably pay for the goods or services your business provides on a 30-day payment timeline. If you work in telecom, freight, transportation, government contracting, or other sector, your customers may take even longer to pay such as 45- or even 60-days.
Speed up your company’s invoice payments
Few small businesses – even those with robust sales — can truly thrive and grow with these long payment timelines. The very nature of the 30-day or more payment means that your business will always be in the backseat rather than the driver’s seat in regards to managing your financials. And again, if you are only meeting your financial obligations, you are not in a financial position to grow your business.
Stop waiting & starting collecting through invoice factoring
With the above scenario in mind, factoring receivables removes the wait and puts you in immediate control of your business financials, which is exactly where you want to be. By selling your current and valid invoices to a factoring company to receive cash for them almost immediately, you are taking control of your finances instead of letting them control you.
The factoring company will purchase your invoices and pay you up to 92 percent of their total value in a matter of days. Through non-recourse factoring, the company will assume the risk & then take on the role of waiting in collecting payment from your customer. That is, your customers will continue to pay its bills in the usual 30-day or more time frames. They are largely unaffected by the involvement of an invoice factoring company as it will act as a sort of collections department on your behalf.
It is important to note that certain industries are very familiar with this process, especially those where factoring is more commonly used such as staffing or government contracting. This fact tends to put a potential factoring client at ease knowing their customers will not be caught off-guard by the 3rd party collecting payment for their unpaid invoices.
Factoring receivables provides accessibility to capital
Now that you’ve eliminated the wait period for getting paid for services or goods you’ve already sold to your customers, that is, money that is already owed to you, how else can factoring help you grow your business?
Many businesses owners do not accurately estimate the amount of money they need to run their business. Oftentimes, business operations’ costs are higher than expected: commercial property rent increases without much notice, equipment and supplies are higher than planned, payroll takes a big hit on your bottom line and a costly unexpected event or situation eats into your earnings. When you find your business in one of these scenarios that cannot be unchanged, collecting capital that is owed to you (and quickly) is quite a necessity.
Invoice factoring services are accessible to most any small businesses
These are the normal headaches that come with running a small business. Through factoring, you have access to cash or a line of credit available to you when you need it. This open availability for quick cash in hand, is in many ways almost as important as the cash itself. For many small businesses, loans are often out of reach, too difficult to qualify for, or can take too long process. All too often, it’s a cocktail of all three inconveniences.
With invoice factoring, as long as you have customers in good standing, you are able to get capital for business. So if you are seeking to expand into new markets or territories with your business and you are hit with an unexpected bill, you don’t have to be railroaded. You can get the cash you need to cover this surprise payment and still have sufficient capital to pursue other business expansion efforts.
Improve your cash flow management
Partnering with quality, customer-service oriented invoice factoring companies can help you get ahead by helping to manage the entire account receivables process. So in addition to expediting the process of getting paid, many invoice factoring companies will also do the legwork of account receivables and collections management. This allows you to go about your day-to-day focusing on more pressing matters such as your company’s potential to expand and grow.
Factoring even helps you manage your accounts
This means you can always know when your payments have arrived, who owes you what, etc. As an added service, many invoice factoring companies will even serve as the collections arm of your company in collecting payment as well as reminding customers of payment due. In this way, by partnering with an invoice factoring company, you are offshoring your collections and some account management functions, which enables you to spend more time on sales generating rather than operational business activities.