How Invoice Financing Can Help Your Business
Invoice financing is a business arrangement in which a company sells some or all of its invoices to a factoring company, for a percentage between 75 and 85% of their face value. The selling company receives an instant sum of cash, and when the customers who were billed by those invoices finally make payment, the remainder of the invoices’ face value is paid by the factoring company to the selling company, after deducting its standard fee. There are a number of ways this kind of arrangement can really help your business, especially if you are in need of cash quickly.
You get fast cash
If you had to wait for customers to pay off the invoices you sold, it could be anywhere from 30 to 120 days before payments came trickling in to your Accounts Receivable. When you sell them to a factoring company, you can generally receive cash within a few days, which can be a life-saver for a small business struggling to meet payroll or to buy inventory.
Collections are easier
When you sell your invoices, you are no longer responsible for collecting payments from the customer being invoiced – the factoring company does that. This means that you can have a smaller Collections staff, and your personnel can spend more time doing value-added work for the company, rather than chasing after late payments. This also has the potential to save you a lot of money on employee payroll, because Collections people can return to their normal jobs.
Facilitates business growth
Because your business has a steady cash flow through invoice financing, your business becomes much more stable, and you can begin to seek opportunities for growth when they pop up. It will also allow you to accept more big jobs, because you’ll have confidence in your company’s ability to meet the financial demands of larger projects. More companies will begin offering you large jobs, and your reputation as a ‘can-do’ business gets spread around to everyone in your market.