Why do we talk about cash flow so much? Because successful business is ultimately all about cash flow. It is always good to revisit the benefits of invoice factoring when it comes to cash flow management.
Just to clarify the role of a factor for those of you new to our blog, or to the process of factoring: Companies that are either struggling with cash flow or slow-paying customers can sell their invoices or accounts receivable to a factor. The factor advances the vast majority of the invoice amount, usually between 70 to 90%, once the credit-worthiness of the billed customer is checked. When the invoice is paid, the factor remits the balance, minus a small factoring fee.
So it is immediately apparent how factoring can help cash flow. Not having to wait 30-90 days for payment on outstanding invoices gives a company the ability to utilize that money immediately to pay bills or grow.
While there used to be a stigma attached to the concept of factoring, that myth as been dispelled, and many large companies use factoring as a matter of course. It is also extremely useful for small start-ups that need every penny as soon as possible in order to stay in business. And we should dispel the other myth that factoring may have cash flow advantages, but those advantages are outweighed by hidden fees with no long-term benefit. However, if you are a company that sends out many invoices for small amounts, the fees can potentially add up. Your factor will be able to assess each situation and advise you accordingly.
Many factors specialize in industries such as trucking, staffing, oil and gas, and distribution. This means they really understand your specific cash flow needs. Bay View Funding is a great example of this type of factor. They will be able to evaluate your situation, and let you know the most effective program for your company. There are occasions where there may be additional programs that can further help cash flow, for example, trucking companies may want to consider the Fuel Advance Program, or staffing companies can consider the Payroll Advance Program as an added boost to cash flow management.
Another huge cash flow savings can come in the form of collection management. The factor handles collections as part of the factoring service. You do not have to worry about billing and credit checking. An experienced factor such as Bay View Funding, works with you to take the pain out of collections, and to ensure a strong relationship with your clients so you do not have to be concerned about letting go of the responsibility of invoice collection.
For more great information, take a look at an informative blog from Bizfilings.com, written by Alice Magos. Alice takes a deeper look at how factoring can improve your small business cash flow. Ms. Magos concludes with the thought that factoring can often be an overlooked option when it comes to a cash flow crunch! The team at Bay View Funding are always ready to answer any questions and help you find the right solution when if comes to factoring your accounts receivable.
