How Factoring Can Help Your Business

Any business, to stay viable, needs an adequate cash flow to fund its ongoing operations. If cash flow approaches zero or is held up, the business can suffer, or even stop functioning.

Many businesses today are having a difficult time because of the weak economy and other factors related to the pandemic. Cash flow may be sparse. The customer base may be reduced and sales curtailed. What can businesses do to maintain their cash flow until business returns to normal?

Invoice Factoring: A Good Solution for Many Businesses

Invoice factoring is a cash-flow option that may be beneficial to many businesses, especially those who pre-sell their goods or services. Invoice factoring occurs when a business sells its yet-to-be-paid invoices to an outside financing agent and in return receives an immediate payment of cash in return.

Benefits of Invoice Factoring

This method of financing can be beneficial to businesses in several ways. These include:

  • Immediate Influx of Working Cash. In most cases, once you make a deal with the financing agent, your working capital arrives speedily and efficiently.
  • Invoice Factoring is Not a Loan. The up-front money received is not a loan. It is a payment for the invoices you sold. It does not need to be paid back.
  • High Flexibility. A business can use the cash in any way they see fit. There are no restrictions on how and when it must be used.

Other Reasons to Consider Using Factoring

Think about these other beneficial aspects of invoice factoring when determining if it is right for your business.

  • Credit Rating May Not Be So Important. You may qualify for invoice factoring even if you or your business has a less-than-stellar credit rating. This is because the financing agent focuses more on the ability of the customers to pay, not as much on your credit history.
  • You Don’t Need To Chase Down Your Collections. Sometimes a business can wait a long time to get paid for work or services rendered. Factoring eliminates that potential problem.
  • There Is Not a Long-Term Commitment. You can use factoring to move past short-term bottlenecks in cash flow. There is generally no long-term relationship required.
  • It Can Be Customized for Your Business Situation. Invoice factoring is highly flexible. Use it one time or make it a mainstay of your business model. Indeed, you are free to factor out some or all of your unpaid invoices, generally as you deem fit for purpose.
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