Image for Invoice Factoring: 6 Ways it Can Boost Your Business

Invoice Factoring: 6 Ways it Can Boost Your Business

Triumph Business Capital

May 17, 2019

Small business owners sometimes struggle with managing cash flow and finding the working capital to grow their companies. Invoice factoring is a form of accounts receivable financing that provides you with a cash advance on your invoices that are due within the next 90 days. Is factoring right for your small business? Here are seven benefits of working with commercial factoring companies.

1. Invoice Factoring Streamlines Your Cash Flow

When you sell your invoices to an invoice factoring company, you get immediate cash in return for your invoices. You won’t need to wait for your clients to pay their invoices – and that gives you the power to buy raw materials, fill orders and expand your business. Cash flow problems are responsible for approximately 82% of all business failures in the US, so this benefit is an important one. It’s also worth noting that invoice factoring provides financing without debt. It’s not a loan, and it won’t add to the liabilities on your balance sheet.

2. Small Business Factoring Promotes Better Credit Control

Another big advantage of invoice factoring is that it takes the burden of credit control away from you, saving you time and money. You can be confident about accepting terms with your clients because you won’t need to wait for payments from them. Your factoring company will handle every aspect of credit control for the invoices you factor, including checking your clients’ credit, collecting outstanding amounts, and providing you with detailed reports of every transaction. It can cost you a lot to handle these things yourself, and when you work with a factoring company, these back-office services are included in your fees.

3. Invoice Factoring Can Fund Your Company’s Growth

If you’re like most business owners, you have a vision for where you want your company to be next year and, hopefully, in five years. You want to grow your company, and you need the working capital to make that happen. Invoice factoring can provide you with the capital you need to expand your marketing, take on new clients and fill large orders with ease.

4. Factoring Is Affordable

Invoice factoring is affordable when compared with some other forms of business financing. You won’t pay an interest rate. Instead, you’ll pay a factoring fee, which is a transaction fee based on the amounts of the invoices you factor. Your factoring fee is something you’ll negotiate with your factoring company and is part of your contract. You’ll know in advance what you’ll pay for each invoice, and, in many cases, you can decide which invoices to factor.

5. It’s Easier to Qualify for Factoring

When you apply for a bank loan or line of credit, your business credit score and personal credit score play a big role in whether you qualify. For many small business owners, it can be difficult to get the capital they need if their business or personal credit score does not qualify. By and large, invoice factoring uses credit of your customers as the basis of the qualification criteria when approving invoices. This means invoice factoring companies aren’t just looking at your credit they are looking at the credit of your clients. As long as your customers have good credit you should be able to factor the invoices.

6. No Restrictions on Spending

The money your factoring company advances to you is yours to spend as you see fit. There are no restrictions on your spending. With factoring, you’ll retain complete authority over any decisions regarding how you use the cash you receive. That’s in direct contrast with the rules for business loans, where you’re obligated to spend the funds on the specific needs for which the money was borrowed. When your small business is in need of a cash infusion, the services of commercial factoring companies can provide immediate funds to boost your business. These services can also provide improved credit control, affordable financing, and other value-added benefits.