The Benefits of Invoice Factoring

Running a small business involves juggling a lot of moving parts. When all those parts work together smoothly, your business is more likely to thrive. Avoiding cash flow delays is essential to making your company run well and putting you in a position to expand when opportunities to do so arise. You can choose to take out a small business loan if you qualify, but that's not the only option. There are several reasons why factoring will save your company money in the long run.

Avoiding Budget Gaps

One of the most common problems that slow small businesses down, particularly ones that are just getting started, is a lack of cash flow. Customers don't always take into account that a company depends on timely payment of invoices to be able to function well. Resource factoring can help resolve this problem.

Factoring works by giving you the capital you need to make payroll and buy supplies even before the customers make their payment. The factoring company purchases your invoices and takes over the collection process. Non-recourse factoring offers more secure payment but it comes with higher fees. Recourse factoring, wherein you agree to resume responsibility for unpaid invoices, allows you to get the cash up front for a smaller percentage. No matter which option you choose, however, you can get the cash for the products or services you have provided when you need it. The best part is that the money you receive doesn't have to be paid back. It's not a loan; it's payment for work you've already done.

Maximizing Staff Potential

Most companies don't start off with a full staff. They may just be starting with a skeleton crew that handles production, sales and marketing. The bulk of the operation either requires hiring administrative staff to handle customer care or, more often than not, is left to the business owners themselves. Being able to outsource some of that work is helpful, particularly in the beginning. You can save yourself valuable time and save money on having to hire your own employees to collect payments.

When you sell your invoices to a factoring company, you are essentially outsourcing your accounts receivable department. For a small fee, you get the benefit of a company that is already set up to do the work of collecting payment for invoices and create reports for your books. You don't have to spend your time calling customers or sending reminders that payments are due. This frees up you and your staff to focus on the specialized tasks that make your company unique.

Embracing Opportunities

Opportunities for deals and discounts may come along, but they don't last forever. Your suppliers may offer a discount for companies that are able to pay bulk prices up front. If you are waiting on your customers to pay or pouring significant financial resources into collection, you are not in a position to take advantage of discounts when they are offered. The same is true if you get an offer to expand your operation. You always want to have a cushion that allows you to grow. Factoring allows you to sell your invoices so that you can get the cash you need to be ready when the chance to save money or expand your business arises.

Your sales team is crucial to your success. The fastest way to increase revenue is to get the products or services you provide to the customers, and the members of your sales force make this happen. You have to balance sales with payment, though. By outsourcing collection of your invoices, you can invest more of your time and resources into training and expanding your sales team. Ultimately, this is how you make your business stronger and increase your income.

Reliable cash flow is essential to keeping your business afloat. Factoring can not only save you money in the long run but also provide much-needed capital in a timely manner.