All businesses struggle with their cash flow at some point or another. Unfortunately, if you handle invoices, then your company probably struggles even more. If your company uses invoices, then you have to wait for your customers to pay. This can drag on your resources a lot. Fortunately, there are ways around this problem with invoices. That solution is invoice financing or factoring. This provides you with a way to turn unpaid invoices into working capital. Here are some tips for you to get ahead of your cash flow.
Use Traditional Invoice Financing
Traditional invoice financing involves a simple process:
- Sell your business’s invoices to a company
- Receive 85 to 95 percent of the value of the invoice
- Allow the factoring company to collect the customer’s payment
- You receive the remaining percentage minus the fees
Invoice financing might not seem ideal at first. After all, you have to give up a small percentage of your revenue. However, when you think about the benefits that you receive from having quick access to cash, it makes it more than worth it. You’re able to pay employees, purchase goods and new materials right away. Anything that you need to grow your business, you can afford.
There are also variations with traditional invoice financing. For instance, there are recourse vs non-recourse financing. In recourse financing, the business owner is responsible for any unpaid invoices. In non-recourse financing, the business owner is not responsible.
Another variation is invoice discounting. This is when unpaid invoices are collateral. The customer doesn’t know that you’re using their invoices as collateral. You can collect the invoice payments while you maintain a personal relationship with the customer.
Use Online Invoice Financing
Online factoring is also becoming more popular. Companies allow you to apply for financing online and don’t require long-term contracts the way that other companies do. You have more control over the invoices that you finance and you don’t have to deal with extra fees. Most of these companies are similar to one another but you should look at different options before settling on a particular company.
All businesses struggle with their cash flow at some point or another. Factoring is a way that you can get access to your invoices right away. If you can’t access the money on your invoices right away, then you may not be able to pay for the necessities for your company. With the right company and tips, you can get ahead with your cash flow.