One of the problems faced by many small businesses is maintaining liquid finances while waiting for invoices to be paid. Depending on the type of business and their clients, invoices may commonly take weeks, if not months to be paid. This can create a cash crisis for the small business.
Many small business may opt for business loans or lines of credit that will provide the needed cash, but also increase the amount of debt the companies carries. While this may relieve the short-term cash gap, it will create a larger one down the road as you run into the same problem but now have an additional monthly bill to pay.
Invoice factoring allows companies to sell their unpaid invoices for up to 90% of the total amount. The factoring company than works on collecting the invoice amount from the client. This provides the small business with the cash they need upfront for invoices that will typically take weeks to pay.
Invoice factoring has become increasingly common within the freight and transportation industry as it is common for invoices to take a long time to payout within this industry. Although it is an accepted practice, it puts a financial strain on the individual companies involved in the transportation of goods.
Transportation factoring allows for the smooth flow of products from the manufacturer to the distributor to the client without extended delays due to liquidity problems. Factoring financing is a common practice within several industries because it allows companies to avoid the constant need for small business loans.
The International Factoring Association provides a standard of operations and ethical business practices. It surveys member companies to ensure they are offering the best possible services, and provides a rating to allow future clients to research invoice factoring companies to determine what the best invoice factoring companies are to fulfill their specific needs.
The International Factoring Association also provides information on the practice of factoring for businesses and business owners, who may not be entirely clear on how the process works or what they should expect from their factoring company. It provides an outlet for small businesses that want to recommend their factoring company to others.
Finally, the International Factoring Association provides ongoing research, training, and conferences for factoring companies to allow them to continually improve their offerings as a financial service organization. Factoring companies that are members of the International Factoring Association have taken a clear step towards improving their overall business and is a verification for potential clients.
Like most professional industry associations, membership is a sign of integrity and is intended, in part, to instill trust in the customers. While being a member of a professional business organization like the International Factoring Association, does not automatically mean the company is your best option, it does provide a mark of professionalism.
Like anything in business, when dealing with a finances and financial institutions, you need to choose companies with a reputation for honesty and integrity. You need to be able to trust that they will providing you the best advice regarding your financial needs. Starting with members of the International Factoring Association will help you to narrow down your options in a productive way.
