Invoice Factoring: Five Lessons for Business Owners

So how’s your cash flow?

Running a successful business depends on having enough cash on hand to meet your obligations in a timely manner, and that’s why thousands of business owners and operators have come to appreciate the advantages offered by invoice factoring.

Convenience and more immediate access to cash tend to be the most commonly mentioned reasons for entering into a factoring arrangement. But there are other considerations to remember when evaluating a factoring arrangement, or when proposing the service to co-workers or peers.

Be sure to contact MP Star Financial with questions or concerns. In the meantime, here are five lessons for business owners considering implementing or expanding a factoring process:

  1. Invoice factoring can be preferable to and easier to access than bank financing. While recently some banks appear to be more receptive to applications from growing businesses, smaller companies are still having difficulties obtaining traditional bank loans. But whatever the current credit and lending markets dictate, factoring can help keep your balance sheet in shape because factoring does not involve taking on more debt. This preserves your company’s debt capacity for when it’s really needed. In addition, no “hard assets” like equipment or real estate are required as collateral.
  2. Factoring is a widely used and firmly established financing tool. Invoice factoring is common across the United States and Canada, and throughout Europe. Factoring has been practiced in one form or another for hundreds of years. Christopher Columbus used factoring services to help finance his trade expeditions. In colonial America, timber, cotton, fur, and grains were shipped to London, after merchant bankers had advanced payment funds to the purveyors. This enabled the colonists to continue working without having to wait for payment from customers in Europe.
  3. Factoring relieves you of your second biggest headache. In a recent survey, collecting on receivables and managing cash flow was cited as the second most difficult problem facing owners of growing businesses. (Obtaining start-up or expansion capital was listed first.) A factoring arrangement lets you receive funds from customer invoices much sooner than the usual 30 to 45 days – often as soon as 24 to 48 hours. And as a bonus, a relationship with a factoring company provides you with professional credit checking and collection services when they’re needed.
  4. Your customers won’t know the difference. Other than being notified of the new address for which to send payments, there is no change in their relationship between you and your customers. In fact, the change can be portrayed positively, as in, “As we continue to grow in order to better serve you, we have engaged the services of MP Star Financial to assist with the processing of accounts receivable.” Payment terms with your company’s accounts remain the same.
  5. It’s easy, but prepare in advance. Although factoring transactions can be completed fairly quickly after the service is arranged, there are a few housekeeping matters that must be addressed prior to the first transaction. These include performing due diligence on your company and its customers, the signing of the factoring agreement, informing customers of the change in payment address, and a couple others. Most of the process is uncomplicated, but the point is, make sure you allow plenty of time to do everything correctly, so you can start benefiting from factoring as soon as possible.

MP Star Financial’s invoice factoring services can make your company’s cash flow more predictable, allowing you time to run your business and grow your company. We are here to help. Call MP Star Financial today for more information at (800) 833-3765, extension 150.

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