Every business requires cash from time to time and it makes no sense to use all your savings for the same. In order to manage the operations of the business, it is important to consider factoring. Due to the banks tightening the norms of lending, the credit options are dwindling. Factoring or account receivable funding has helped a number of business owners achieve their long-term goals. It offers an immediate cash payment on the invoice amount at a fee. Factoring is basically a purchase of the outstanding invoices at a discount.
Benefits of Factoring for a business:
1. Quick access to cash:
Factoring is a process where funds are available within one to two days on the approved invoices. If you use your invoices for raising funds, you can gain very quick access to cash and operate the business without any interruption.
2. Cash flow:
Factoring is not a form of a loan and it will not add any liability on the balance sheet. Hence, there will be no monthly loan payments for you to make and the balance sheet will be clean.
3. Easy terms:
With factoring, there are no long-term contracts or minimum balances to manage. You get to choose which invoices you want to factor based on the amount you need for the business. As your sales grow, the factoring amount will also grow.
4. Low fees:
The cost of factoring is much lower as compared to other forms of borrowing. This cost has come down over the years and the fees vary by volume, industry and the number of invoices. The fees can be as low as 1.5%.
5. Easy to manage:
If you need cash, all you need to have is sales. Factoring companies will not tell you how to use the funds and there is no requirement you need to fulfill in order to get access to the funds. You are in total control of the amount you gain access to.
6. Increase profits:
A lot of companies need funds to expand their market and to reach out to a wider number of consumers. With factoring, they can make the most of early payment discounts, expand the inventory for bulk orders and negotiate the bulk discounts. You can use factoring to save money as well as make money in the business.
7. Extend terms to customers:
You can manage to increase the sales of your business while offering credit terms to the consumers without damaging the cash flow. The factoring company will also help you underwrite the existing customer’s ability to pay so that you can avoid extending the terms to any of the high-risk consumers. Todd Walsh from Factor Finders explains that eliminating bad debt from your business critical to the growth of your company.
You can save time and manage the receivables in a professional manner. The factoring companies have the ability to manage the paperwork as well as process and collect the payment on your invoices in a hassle-free manner.