Small businesses are waiting longer to get paid from their commercial customers. While large companies hold on to their money to sustain their own working capital, small businesses are being stretched financially. A survey of 850 small businesses performed by the National Federation of Independent Business show up to 64% reported having invoices being unpaid for at least 60 days. The survey also found that 20% of delinquencies were getting worse. Small businesses are wondering: “Where’s my money?” Cash is the lifeblood of any business and without it your business will fail. One of the main challenges that small businesses face is how to maintain a consistent cash flow in order to survive and grow. With large corporations opting to wait a full 60 days to pay their vendors it is becoming more difficult for small businesses to meet their financial obligations such as payroll, taxes, paying suppliers, fuel, etc. Cash flow delays can prevent small businesses from growing and create great financial stress! When you find yourself in this position, take a look into invoice factoring.
Fast Cash: Spotlight on Invoice Factoring
What is Invoice Factoring?
There is a great financial tool that is available to small businesses that can ensure a positive inflow of cash – invoice factoring! Factoring your accounts receivable is an effective approach to improve the cash flow of your business. Invoice factoring is defined as the selling of your receivables or invoices to a factoring company (called a factor) to get paid quickly on a sale or work that has been completed.
Most factors can fund your small business up to 95% of the value of invoices submitted and such transactions are typically funded to you within the next business day rather than waiting past 30, 60 or even 90 days. Invoice factoring allows you to get paid and focus on what you do best.
How Can Factoring Help Your Small Business?
When banks say no, invoice factoring is a great option to receive cash for your business. Aside from getting paid much sooner, here are some benefits to factoring your accounts receivable:
• No cash use restriction – Unlike a bank loan or line of credit, you can use cash funded to you for any reason.
• Not take on new debt – Invoice factoring allows you to get cash without incurring new debt.
• Reduce or eliminate debt – Improve the ability to pay your bills down or pay them off.
• Grow! – Improved cash flow means more working capital readily available to help your business fulfill more orders and increase sales.
• Stress free – No more worrying about when you are going to get paid and how you’re going to pay your bills.
Choosing the Right Factoring Company
Your business is unique and so are your needs. Choosing the right factor to help you is essential to your success. Here are some tips on how to help you choose the right factor for your small business:
• Customer service – Select a factor that provides friendly and professional support that will help you be informed of all phases of the factoring process: application, verification and approval, funding, and collection.
• Experience – Finding a factor that has experience serving your specific industry can ensure speedy funding, exceptional customer service with your clients, and factoring success.
• Products and services – It is important to understand what a factor offers to assist you with your small business needs: recourse or non-recourse factoring, funding options, credit checks, online dashboards, contract terms, etc.
• Collection process – Will a factor use a third-party collection agency or will collection efforts stay in-house? How often will a factor contact your client to collect on an invoice?
• Fees – Do they have a tiered fee schedule or a fixed factor fee? Do they hold a reserve and if so how much? Understand all costs associated with invoice factoring can help you understand whether you’ll get funded 75% or up to 95%.
When your company needs cash fast, consider invoice factoring. Selling receivables is an excellent way for instant cash flow, but be careful to consider all the implications before pursuing.
This guest post was provided by Ramir Rodriguez, a Business Development Officer with Treasure Valley Factors. He has helped businesses understand how factoring can help them get paid on completed work and grow their business. Ramir has a B.Sc. in Business Administration from Eastern Oregon University. For more information on factoring please visit the blog Factoring Helps. Don’t forget also to connect with Ramir on Twitter and LinkedIn and “Like” Treasure Valley Factors on Facebook!