One of the most common reasons for stifled growth or even business failure is limited cash flow. A study by U.S. Bank showed that as many as 82 percent of startup and small business failures can be attributed to poor cash flow management.
As an entrepreneur, you may find yourself eventually looking for funding solutions. This can involve startup funding, opportunistic investments, or slow profit seasons. The advantages of invoice factoring can make this service preferential to other options such as soliciting investors and establishing a credit line – both of which may have its own disadvantages.
Soliciting investors can take a lot of time, effort, and expertise; factoring doesn’t. Establishing a credit line requires good credit; factoring doesn’t. Using a credit line gets you further into debt; factoring doesn’t. A more in-depth look into the benefits of invoice factoring highlights even more ways invoice factoring adds value.
AR Relief
Typically, entrepreneurs take up several roles in their businesses, including accounts receivable manager. Invoice factoring can take some weight off of your accounts receivable department, which is especially helpful if you are your accounts receivable department. Not only can you get cash sooner than you normally would, freeing up more time for you to worry about the other aspects of your up and coming business, you can also reduce AR department costs.
Additionally, the way this is handled reflects on your business. Rather than stretching yourself too thin between being the business development, marketing/sales, and AR departments, and potentially damaging client relationships by rushing payments, it may be easier to leave handling invoices to a professional firm that can devote more time to the accounts.
Capture Opportunities
Factoring can provide you with the funds necessary to jump on an opportunity that can grow your business or reduce your expenditures; for example, you could add a product line, make a bulk discounted purchase, extend terms to get a quality client, or open a new location.
Preserve and Improve Credit Rating
Your relationship with your vendors can be critical to your success. Your credit rating is equally important, particularly for attracting quality clients. Stimulating cash flow through invoice factoring can make it easier to meet your obligations in a timely manner and keep your credit score up, while also preserving your client relationships.
Any Business Can Benefit
Factoring is a viable way to improve your business. Any business that wants their money working for them can benefit. Even if you have unlimited capital, there are ways to put factoring to use. For example, use invoice factoring to take the burden of collection off your shoulders or to shift money to another sector.
How Factoring Helps Your Startup
As a startup, you may not have many invoices yet, so you may not feel the need to set up a contract with a factoring company. However, invoice factoring can definitely benefit your startup early in your company’s inception. Your initial capital is likely going to be stretched to its threshold; if you set up invoice factoring, you won’t have to wait 30 to 90 days for those first invoice payments.
This quick funding provides you with the cash flow to invest in inventory or improving services. The more inventory or services you have, the more sales potential. Rather being stuck contemplating your needs versus expenses while waiting for incoming payments early on, you’ll be ahead of the cash flow process and able to focus on growth.
Improve Your Business
At Bay View Funding, we are happy to help you set up factoring on day one or down the road. Let us factor your invoices and you’ll see how beneficial it can be for the growth of your company.
