In simple terms,business invoice factoring involves borrowing funds against unpaid invoices. Smart companies however are increasingly leveraging their business financing options using invoice factoring. Invoice factoring is an effective way of acquiring advance business capital by allowing businesses to draw money against invoices that are scheduled for future processing. Invoice funding is a strategic funding option for businesses that experience frequent cash-flow problems. Most startups can attest to the fact that delayed payments by customers can slow down business growth and development. It is estimated that nearly 60% of invoices are paid late. This limits a business’s’ ability to access the much-needed cash to stay afloat. Below are ways that business invoice factoring can boost your company’s success.
Invoice funding companies exist to help startups access funding and borrowing options that are low-risk. One of the greatest challenges that small and medium enterprises face is lack of adequate funding. Taking into consideration that these businesses are at the expansion phase, an invoice advance loan is perhaps the most viable alternative to other conventional business financing options available. Contrary to popular belief, business invoice factoring is not ideally a loan-it doesn’t add debt to the business’s balance sheet. The reason why there is a misconception on the kind of funding invoice factoring is all about is because the concept is in its early stages of implementation. There is no collateral holding in invoice factoring since invoice funding companies take a cut from your outstanding invoices.
Invoice Factoring Prevents You from Racking Debts
Business startups often have to juggle between accessing commercial funding and risk plunging into huge debts. This can happen at the detriment of new businesses that have no control over their balance sheet. In most cases, there is always the risk of a business taking in more loans than they can repay. However, invoice factoring tries to regulate the borrowing patterns of small and medium startups by allowing these kind of businesses to take debts that they can be able to repay. Since you will only be taking advance financing against your invoices, it is not possible to acquire financial assistance that exceeds your repayment capability. Business invoice factoring companies also do not charge high interest rates but rather take their cut from the invoices.
Helps in Operationalizing Business Cash Flow
For most businesses to stay afloat, they must be in a position to maintain their balance sheet. Traditionally, most companies used to rely on loan funding to sustain their operations. Some common risks of taking too much loans is that a business can fail to raise the minimum repayment or even risk sinking into too much debt. With invoice factoring however, business operations can be rationalized in such a manner that there is continuity since you can inject more funds into the business on per-need basis. In a nutshell, invoice factoring allows you access to funds that will be yours-from a future context, prematurely.
Access to Professional Financial Expertise
When dealing with invoice factories companies, you not only have access to cash flow options but you also benefit from a team of professional financial experts handling your invoice ledger. This is actually a relief for most business people since the factoring company takes up all the responsibilities of collecting the amount owed to you by customers. Instead of having to stress yourself with a huge amount of paperwork, you and your staff can concentrate on other activities that help the business grow.
Promotes Business Growth
There are many benefits of using invoice factoring and key among them is that this form of business financing helps the business grow exponentially. So why get an invoice advance loan?Business invoice factoring is an avenue to improved business growth through exposure to more business activities. Let’s take a hypothetical case. Assuming that your business has been contracted to supply goods and services that will consumer almost a half of your entire business finances, most companies will shy away from taking up such a deal. However, invoice factoring can increase your cash liquidity ensuring that even if you take such a massive financial risk, the business is not at risk in case things go wrong.