Numerous companies turn to invoice factoring when faced with cash flow difficulties. This form of financing offers a rapid approval process, an increase in working capital, and a reliable income that you can use for marketing, paying employees and suppliers, growing your business, and other needs.
Here are the steps to take when looking into invoice factoring as a source of funding for your company.
Some entrepreneurs consider that factoring is only a means of financing startups, but in fact it can benefit businesses in many industries at various stages of growth. It’s an ideal solution when you need to boost cash flow, make up for seasonal slow-downs, or fund specific aspects of business growth such as the development of new products or the opening of locations in areas with sales potential.
Watch for indications that your company may benefit from invoice factoring. For instance, if you have habitually late-paying clients, factoring can stabilize your cash flow. It may be especially useful if delayed payments cause you to have difficulties with meeting your company payroll requirements on time. Your business is a good candidate for factoring if your clients have good credit ratings and your company does not have any problems with taxes or other legal issues.
Compare With Other Options
Assess the suitability of factoring for your business in comparison with other forms of financing. A small business loan from a traditional bank involves borrowing a fixed amount that you have to pay back over time. However, with factoring you are receiving an advance on your invoices so there is no interest, no future payments, and you can increase the amount of available funding as your business grows and you accumulate more invoices. Additionally, unlike banks, factoring companies place no limitations on how you can spend the money.
Understand the Process
If you want to use invoice factoring to help finance your company, go into the agreement with your eyes open. Understand the fees involved and the possibility of putting up collateral if your clients don’t pay their bills.
For more advice on invoice factoring, contact Growth CC.