Can Your Business Benefit from Factoring?
Invoice-based businesses have used factoring services to normalize cash flow for decades, and for good reason. While there are other options and not every business using invoices needs a factor, there are a lot of companies that benefit from the service. In some cases, it is just the ingredient needed to let the business grow and flourish into something you can call a legacy.
Normalize Paydays
So, who does need a factor? There are a few types of businesses that typically find their success with this financial tool. The first kind is a company with a lot of business but also a lot of cash flow crunch. Invoice-plus billing tends to cause this, especially if you are at plus 90. That’s simply too wide a payment window to predict when income will actually hit, so selling the invoice to a factor and moving on from the debt is often the best way to keep cash going out to meet overhead commitments.
Outsource Receivables
The second type of business that benefits from regular factoring is the small operation. Owner-operator companies with no employees are a great example. Freelancers and other professionals who essentially bill their labor directly wind up with a lot of work in collecting payment when customers are not direct and timely.
Sending invoices to a factor on a schedule makes that someone else’s work to do for a predictable cost, allowing you to focus on your profession. The increased billing time available to freelancers often offsets the costs of the service. Even when it doesn’t, folding the factor’s cost into quotes is not difficult once you have a relationship with a single company that knows your business and its clientele.
Access Working Capital as Needed
The last type of business that regularly benefits from factoring is the company that does not actually need it for cash flow. If you have invoices and enough operational capital to suit your near-term needs, you can use the value in the unpaid invoices on hand to access capital for projects, asset acquisitions, or other expansion moves.
This is a sophisticated way to use the service because you have to be sure you have enough capital to meet outgoing commitments until you have new invoices on hand to finance for cash flow. If done correctly, though, it can provide access to equipment or even real estate without taking on debt. So, what kind of company are you running?