Like many financial services, invoice factoring works best when used as part of an overall financial management strategy. When used appropriately, it may help jumpstart growth, pay down debt, and help businesses find a path to financial success. We’re here to help you understand exactly what invoice factoring is and when you should consider using it for your business.
What is Invoice Factoring?
Invoice factoring is a process designed to help companies get their money faster. Instead of waiting for weeks or even months for the invoices to be paid, a third-party company (an invoice factoring company) will purchase your outstanding invoices. Once this step is completed, the company may pay you in full in as little as 24 hours.
Essentially, invoice factoring is a form of loan your customers will pay. The biggest benefit, of course, is the speed. Sometimes customers can take 30- or even 60-plus days before they pay their outstanding invoices. The factoring company does your waiting for you, allowing your business to push forward.
Invoice factoring is also simpler. You collect from one source – the factoring company. These companies receive the money from your customers, saving you the trouble of collections and follow up.
Should I use Invoice Factoring?
If you’re on the fence about taking advantage of invoice factoring, it’s understandable. After all, you need to think about the future of your business in every endeavor. If any of these conditions sound like your situation, however, invoice factoring could be a very big help:
- You need your money immediately. Even if you’re making sales consistently and frequently, it doesn’t mean you’ll receive payment immediately. Invoice factoring can help you pay employees, order supplies, invest in new ventures, and more. This is especially important if you’re just beginning your business, since there are often large upfront costs.
- You’re having difficulty qualifying for a loan. Even if your company has been around for years, it can be difficult to get a traditional loan. Invoice factoring offers the same cash-advancing benefits without troublesome loan payments or extended processing times.
- You want to protect your relationship with clients. Aside from the outstanding debts, you probably have a very good relationship with your customers. Threatening collections or reminding them about their balance, however, can push those same people away. Informing them that you will sell any invoices beyond a certain age to a factoring agency can encourage them to pay sooner without straining the bond.
If you have questions about this and how factoring can help your business boost cash flow, give Bay View Funding a call at 888-229-9993 or contact us online. We’d love to show you how invoice factoring can make a difference for your business.