Businesses in all industries can face cash-flow problems. Slow to pay customers can mean that your business lacks liquidity, despite having money “on the books”. The answer might just be to use invoice factoring to get around that issue and improve your situation. What should you know about this process?
What Is Factoring?
Really, this process is nothing more than selling your outstanding invoices in exchange for an immediate infusion of capital. Working with a factor, you sell unpaid invoices. The factor gives you a cash advance based on a percentage of the invoice’s value. Once the customer or client pays the invoice, you receive the balance of the bill, minus a fee assessed by the factor.
Benefits of Invoice Factoring
There are numerous benefits to working with a factor. Perhaps the most important one is that your company gets the funding it needs right now, rather than having to wait 30, 60, or 90 days for your customers to pay. Another is that this capital can be used in many ways – pay your employees, rebuild your inventory, or start expanding by investing in commercial real estate. It’s your money and can be used in any way that your business requires. You also save time, hassle, and money because the factor handles the billing, invoicing, and collections aspects.
What Decision Makers Should Know
While working with a factor can be very beneficial, there are a few catches. First, not all factors are the same. Make sure you compare percentage points assessed per invoice before choosing a factor. Also, it is worth considering whether a factor specializes in your industry or niche, as you will usually see better profitability here.
For more information about how factoring, get in touch with Affinity Capital. It’s time to build a stronger business.