Why Invoice Factoring is a Great Choice for Small Businesses

Small business owners have many difficult choices to make when starting their new businesses. From determining a path to profitability, to hiring employees, to choosing a location for the business, there are a lot of considerations to made before the first product is ever even sold.

One of the most important decisions a small business owner will make is what type of financing to use to fund the business. Invoice factoring is a reliable form of business financing that more and more business owners are choosing each year. Factoring allows for immediate cash, without the business owners having to obtain a loan from a bank. No interest rates are involved.

Here is some information on factoring to help small business owners understand this option:

What is Factoring?

Factoring is when a business sells its accounts receivable to a third party at a discount. The accounts receivable are also known as invoices, and the third party is called the factor. This can be done when the business needs immediate cash.

Factoring is a fast and easy way to turn outstanding accounts receivables into a profit that can then be used for other needs.

Keep Balance Sheets on Target

Factoring can help small business owners make sure their balance sheets are on target and that cash flow is where it needs to be. Cash flow is an important metric not only for business owners and investors, but it also is used to directly purchase necessary goods for a company.

Without cash flow, it’s possible that the business would have to take out loans, which are often more costly than factoring when it comes to generating quick cash.

Remain Liquid and Sustainable

Liquidity is incredibly important to small businesses that have a lot of monthly expenses and to companies where business ebbs and flows greatly on a regular basis. Business loans can take a long time to process and receive, but factoring allows for immediate cash for expenses including payroll or the purchase of needed supplies. The cash can also be used to cover expenses such as utilities and rent.

Uninterrupted Service

It is important that small business owners don’t let their customers know that there are problems with the business. If a business is going through a tough time, or even just a period of low cash, it is best to make sure customers never notice that anything is wrong.

Factoring can ensure uninterrupted service for customers. Most factoring arrangements with a discounting company will go unnoticed by customers.

Industry Specialization

When small business owners search for a factoring partner, it is best to look for industry specialists. Many factoring companies focus on certain business sectors. For instance, a factoring company may focus on working with businesses that need help with billing because of a lack of in-house accounting support.

Small business owners are often overwhelmed with all of the choices they need to make to keep their company running smoothly. Keeping cash flow in check is important so that all bills can be paid in a timely manner and so that customers don’t notice any service disruptions. Factoring can help business owners get immediate cash without the challenges of obtaining business loans.

Tags: Accounts receivable, Business, Cash flow, Factoring

Category: Business