With the current state of the stock market and the economic implications of the Coronavirus pandemic, many small businesses may soon be facing a financial crunch. In tough economic times, cash flow can dwindle, making it a struggle to keep your business operating. With traditional business loans difficult to obtain even when the economy is good, how can a small business supplement its cash flow? There are a variety of alternative funding options available. However, if your business invoices its clients and then has to wait for 30, 60 or even 90 days to receive payment, invoice factoring could be a great tool to add to your small business survival kit.
Invoice factoring is also referred to as account receivable financing. It can be a great way to leverage the value of those invoices and turn it into cash when you need it rather than waiting for your clients to pay when their invoices come due. It works like this. You sell your unpaid invoices to an invoice factoring company, commonly known as a factor. Once the invoices are approved by the factor, you receive an immediate payment of those invoices, minus a small factoring fee. Payment of the invoices is now owed to the factor and they will collect payment from your customers. It’s important to keep in mind, factoring can only be used for invoices to customers with good payment history. Overdue invoices can not be factored. Now you know how it works. Once you understand the benefits of invoice factoring you’ll see why it could be a small business survival kit necessity.
Having sufficient working capital to maintain daily operations during a downturn in the economy is crucial. However, the last thing a business owner wants to do in uncertain economic times is to take on additional debt. With invoice factoring, you are simply getting an advanced payment on money that is already owed to you.
With invoice factoring, collections of the invoices you sold to the factor are no longer your responsibility. Those invoices are now owned and owed to the factor, who will handle collections. That takes the task off your plate, freeing you up to devote your time to business responsibilities. At this point, you’re probably wondering what happens if one of your customers doesn’t pay their invoice. That depends on the type of invoice factoring you’ve chosen. Recourse factoring provides the factor with legal recourse to collect the fund from you. If you’re factoring large invoices and can’t afford to take the hit if one of your customers doesn’t pay, you may want to consider non-recourse factoring. With this type of factoring, you will not be liable if your customer does pay. However, the fee for non-recourse factoring will be higher. Your factoring provider will explain your options and help you decide which is best for your business.
You’ve worked hard to build your business credit history and maintain a good reputation with your creditors. Not only will invoice factoring can help you protect these but it will prevent you from falling behind on accounts payable. It will also allow you to avoid late fees or damaging your credit score. Selling your unpaid invoices can provide you with the cash you need, typically within a day or two or you won’t have to keep creditors waiting.
Every small business will experience a financial crunch at one time or another. Whether it’s a downturn in the economy or an unforeseen emergency, every business should have a plan to keep their doors open. Part of that plan needs to be a way to maintain your cash flow and invoice factoring can help with that.
You might want to consider adding invoice factoring from CapFlow Funding Group to your small business survival kit. Let’s talk. We specialize in factoring and will work with you to find the best funding solution to provide your business with immediate working capital. We service many different industries with a variety of different funding needs. Contact us today and find out how invoice factoring can help keep your business on track.
