Four Reasons to Consider Invoice Factoring
Industry estimates place annual invoice factoring at nearly $120 billion annually in the United States, alone.
Factoring has been around for centuries, and has helped businesses in at least 70 countries. Factoring has worked effectively in industries as diverse as manufacturing, retail, staffing, transportation and freight, and healthcare.
Still, many small business owners who could benefit from a factoring program have yet to give the transaction a try. This is probably due to a lack of familiarity with the factoring process, and a general reluctance to get involved with any sort of financial institution unless it’s absolutely necessary. Who needs the hassle? Right?
But factoring is a great alternative for companies that occasionally struggle with cash flow management problems, or that just want more predictability when it comes to accessing their receivables. Here are four reasons why.
1. Invoice Factoring is a Fast Funding Alternative
If you’ve experienced the frustration of applying for bank loans or lines of credit – a process thatcan take weeks – you will appreciate the speed with which a factoring arrangement can be implemented. With factoring, you can typically be up and running in just a few business days.
And after your factoring relationship is in place, you can access cash from your outstanding receivables very quickly, sometimes the same day you submit the invoice.
2. Invoice Factoring Means no Additional Debt for Your Company
This is one of the most popular reasons business owners mention when explaining why factoring is appropriate for them. The funds issued to your company are not a loan. It’s your money….you’re just getting it earlier than you normally would. But there’s no additional debt liability added to your business’s balance sheet.
And, with factoring, there are no “fixed” lines of credit, which is typical in conventional bank lending. As your receivables grow, so does your company’s ability to access its funds. Also, relatively small requests (far less than $1 million) are common in factoring arrangements.
3. Invoice Factoring is Flexible
Factoring can help your company meet almost any of its financial obligations – general operating expenses, payroll, rent, or taxes. And the consistency it can bring to your cash flow management allows you to make timely decisions regarding growth and expansion plans. How factoring can help you is limited only by your company’s specific circumstances and your own creativity. See MP Star Financial’s factoring business case studies for examples.
Factoring can also be paired with other business finance tools, like purchase order financing, for example, if your company’s needs require it.
4. Invoice Factoring is Cost-Effective
Some factoring clients have said a factoring arrangement almost turns an invoice into a C.O.D. sale, which beats a 60 or 80 day credit extension to a customer that many net 30 sales tend to become.
A reputable factoring company will immediately provide you with a very large advance on the amount owed on your receivables, and then pay you the balance – minus the factoring company’s service fees – when the original invoice is paid. When compared to other options like traditional bank loans, credit lines, or liquidating assets to make payments, the costs of factoring are minimal.
Always make sure you understand exactly how the fees are calculated. There should be no surprises, hidden fees, or unexpected charges related to your factoring finance arrangement.
For your growing company, invoice factoring can be a better option than taking on more debt.MP Star Financial can offer practical cash flow management solutions. Call for more information. (800) 833-3765, extension 150.