Why Your Business Should Consider Invoice Factoring Financing

Many businesses today are unsure if invoice factoring financing is right for them. The reality, though, is that if you’re running a business that issues 30+ days worth of bills to customers, you really should still keep your back pocket in mind. Why? Because it can give you immediate access to the income you earned from sales.

The first is the first. Before you can understand why you should use invoice factoring financing, you need to know what it is. By nature, most people hesitate when it comes to the unknown. So one of the main reasons people don’t consider this option is because they don’t know what it means. However, the concept of factoring is quite simple. Invoice factoring is a form of asset-based financing in which a third-party lender, called a factor, offers cash in exchange for unpaid invoices at a discounted value. Once the customer pays the invoice, the business owner receives the remaining value of the invoice, less the factor’s fees.

There are many benefits to using invoice factoring financing. First, it’s fast! This is perfect for any fast growing business. Cash flow is a big issue for growing businesses using bill pay. Expenses are rising and you really can’t afford to wait 30-90 days for payments from your customers. Even if you’re not experiencing rapid growth, there will likely come a time when capital demands increase and your cash flow shrinks. Quick access to income during these periods is a significant advantage.

Another great benefit of invoice factoring financing is the flexibility it offers. With more traditional financing methods, there isn’t much you can do to control the outcome because historical data weighs heavily in determining how much, if any, capital you receive. However, with factoring you can choose which invoices you want to factor based on the amount of cash you need and the reliability of that specific customer.

Before making a deal with a factoring company, there are some risks that you should consider. Keep in mind that invoice factoring financing is meant to be a short-term solution. For larger financing needs that require long payment terms, look at other options. You also need to know if your contract includes recourse or non-recourse factoring. In recourse factoring, the business owner is liable if a customer fails to pay their invoice. Non-recourse factoring means that the factoring company bears the risk of non-payment.

In short, invoice factoring financing is an ideal solution for businesses that need a quick, short-term solution to their cash flow problems.