{"id":2986,"date":"2021-04-26T15:14:02","date_gmt":"2021-04-26T20:14:02","guid":{"rendered":"https:\/\/www.headwaycapital.com\/blog\/?p=2986"},"modified":"2021-04-26T15:14:02","modified_gmt":"2021-04-26T20:14:02","slug":"why-invoice-factoring-smart-solution-business","status":"publish","type":"post","link":"https:\/\/www.headwaycapital.com\/blog\/why-invoice-factoring-smart-solution-business\/","title":{"rendered":"Why Invoice Factoring is a Smart Solution for Your Business"},"content":{"rendered":"

Companies that offer invoices with set payment terms for their customers often experience cash flow gaps. Since most of their capital is tied up on outstanding invoices, it can be harder for them to meet their day-to-day expenses or take advantage of growth opportunities.<\/p>\n

While some businesses tap into lines of credit<\/a>, equipment financing, credit cards, or even their personal funds to cover the cash flow gaps, others use invoice factoring to get funding. Factoring offers a way to free up cash, so businesses can get their working capital<\/a> back and grow their company.<\/p>\n

Invoice factoring tends to be more expensive than a traditional loan, so make sure you do the research to ensure it is the right funding choice for your small business. We\u2019ve outlined five reasons why invoice factoring may be a smart solution for your business. But first, let\u2019s start with its definition.<\/p>\n

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What is Invoice Factoring?<\/strong><\/h2>\n

Invoice factoring is a form of invoice financing where the business sells their unpaid customer invoices to get funding. It\u2019s designed to help businesses with aging outstanding invoices free up cash without waiting for customers to pay them. Companies can use the money to fund vital business initiatives like paying staff, buying equipment, inventory, or investing in growth opportunities.<\/p>\n

In invoice factoring, the factor (factoring company), will have complete control over your sales ledger. This means that they would take over the payment chasing and collection. Since your customers will pay the factor directly, they will be aware of the fact that you\u2019re working with a factoring company.<\/p>\n

In general, factoring companies lets you advance between 60% to 95% of the total value of your invoices. The amount of funding will depend on the creditworthiness of your clients.<\/p>\n

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5 Reasons Why Invoice Factoring May Be Right for Your Business<\/strong><\/h2>\n

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1.\u00a0\u00a0\u00a0\u00a0 Keeps cash flow steady for rapidly growing businesses<\/h3>\n

Business expansion is every entrepreneur\u2019s dream. However, maintaining a healthy cash flow<\/a> with a rapidly growing operation could be challenging without securing any forms of financing. Growth means you\u2019d have to pay more for utilities, marketing strategies, and purchase more inventory to meet the growing demands.<\/p>\n

With invoice factoring, you can support the growing needs of your business. Instead of waiting for weeks to get payments, you can get cash in advance through invoice factoring. With the additional boost in your capital, you can meet your financial obligations in time, reorder inventory, maintain a smooth business operation and potentially improve your credit standing.<\/p>\n

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2.\u00a0\u00a0\u00a0\u00a0 Easy to qualify<\/h3>\n

Getting traditional financing could be tricky for businesses, especially start-ups<\/a>. Banks and credit unions place great importance on the business\u2019s financial history since it helps them determine how much risk they\u2019re taking if they approve the financing. In general, businesses lacking credit history and those with bad credit typically are less likely to qualify for a traditional loan.<\/p>\n

With invoice factoring, businesses may not have to worry about their credit background. Unlike traditional financing companies, factors primarily focus on your (the business) customers’ credit and financial background. As long as you\u2019re working with creditworthy customers, you\u2019ll have higher chances of qualifying for invoice factoring.<\/p>\n

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3.\u00a0\u00a0\u00a0\u00a0 Quick funding<\/h3>\n

Businesses often need quick cash to address time-pressing matters. It could be for emergencies like broken equipment, damages, or when pursuing time-bound business opportunities. In cases like these, invoice factoring could be a viable solution.<\/p>\n

Alternative lenders, specifically online lenders<\/a>, can get your business funded within 24 hours after approval. This fast funding allows companies to address pressing matters quickly whether it\u2019s to purchase equipment, meet payroll, or pursue once-in-a-lifetime business opportunities like partnering with or acquiring another business.<\/p>\n

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4.\u00a0\u00a0\u00a0\u00a0 Covers cash flow gaps in the slow season<\/h3>\n

Seasonal businesses need additional capital to keep their business going through the slow seasons. If your business is one of the many experiencing cyclical sales, invoice factoring could be the solution<\/a> you need to help you through the downtime.<\/p>\n

Invoice factoring is not a one-time business financing option. You can build lasting relationships with a factoring company and use their services as long as it makes sense for your business. If you\u2019re experiencing a slow season and you\u2019re having a hard time meeting your monthly financial obligations, you can sell your outstanding invoices, boost cash flow, and bridge any gaps in the cash flow.<\/p>\n

With invoice factoring, you won\u2019t have trouble paying for the following during the off-season:<\/p>\n