In the past, taking out a bank loan was the most common way to get business financing. However, in recent years, banks have become more stringent with their lending requirements, making it harder to secure a business loan. This has resulted in a rise in the popularity of alternative business financing options, such as invoice factoring. However, even with the shortage of bank loans, some business owners remain skeptical about factoring. Understanding how invoice factoring services work and the advantages they offer will help you determine if factoring is the right option for your business.
Invoice factoring services don’t provide business loans. They simply provide an advance on money that is already owed to you from unpaid invoices. Keep in mind, these are not past due invoices but those still within their payment terms. Let’s say you give a customer 90 days to pay their invoice but 60 days in, you need a boost in your cash flow. You can sell that invoice to an invoice factoring service for the majority of its face value – usually between 75 to 90 percent of what is owed to you. Once the invoice is paid, the factoring service will send you the balance minus a small factoring fee.
Besides the fact that traditional business loans have become difficult to obtain, Invoice factoring services offer other advantages as well.
It’s not unusual when a business needs additional capital for the need to be urgent. Applying for a bank loan is a lengthy process littered with financial paperwork. Invoice factoring services requires minimal paperwork beyond the invoices being submitted for factoring. Approval for factoring can be received in 12 hours or less and you can receive funding within days.
With a traditional bank loan, valuable business assets are required for collateral. With factoring, no collateral is required. However, if your customer fails to pay the invoice, you may be held liable, depending on the type of factoring involved and the circumstances surrounding it. Only invoices issued to customers with a reliable payment history should be submitted for factoring.
One thing business owners like to avoid is adding debt to their balance sheet. Since invoice factoring service provides an advance on money already owed to you rather than a loan, no additional debt is incurred.
Worried your credit isn’t good enough to be eligible for invoice factoring? It’s not your credit the factoring service is interested in – it’s your customers’ credit. In addition to being selective about the invoices you choose to submit, the factoring service will look into your customers’ credit to determine if they have a reliable payment history and are a good credit risk.
Invoice factoring services allow you to spend less time collecting receivables. Once your invoices are sold, they are owed to and collected by the factoring service. This means you have more time to spend on other aspects of your business.
Business opportunities are often unexpected. Without proper cash flow, you could miss out on an opportunity for growth or an emergency could put your business at risk. Invoice factoring services can help your business grow and succeed.
When considering invoice factoring, it’s not only important to understand how factoring works but to choose a reputable factoring provider who cares about your success. Not sure if invoice factoring services are right for your business? We can help you figure it out.
Capflow Funding Group will work with you to find the best funding solution to provide your business with immediate working capital. We also work with trusted partners to offer a variety of alternative financing options. Capflow provides service to many different industries with various funding needs. Contact us today and find out how invoice factoring can help grow your small business.
Effective working capital management is at the crux of every successful business strategy. Without enough capital, not only will a business have to pass on growth opportunities but they could end up struggling just to cover daily operations. Consistently maintaining positive working capital can be the difference between success and failure – especially during an economic downturn. However, even when the economy and business are good, working capital management is vital to keep your business moving forward.
Simply put, positive working capital is what a business has left of their current assets once their current liabilities have been satisfied. Proper working capital management provides important benefits.
Maintaining a high level of working capital ensures that a business has sufficient cash flow. This will allow them to not only cover the expense of their daily operations but also to take advantage of unexpected opportunities or handle unanticipated expenses.
Improved liquidity gives the business the ability to prevent disruptions to its daily operations. Fewer disruptions increase production which in turn, keeps the business operating at a high level of efficiency.
The accounts receivable and accounts payable departments of a business play a key role in maintaining sufficient working capital. Encouraging the timely payment of receivables can prevent a gap in cash flow. This will provide the ability to satisfy accounts payable early, receive any early payment discounts, and avoid late payment fees.
Although surviving the economic downturn caused by the recent pandemic was tough, it opened many business owners’ eyes to the need for improved working capital management. Not only will it make things easier when business is good but having sufficient working capital when the unexpected strikes will make the road to recovery easier. Here are some tips to ensure your business is maintaining sufficient working capital.
Maintaining the proper inventory level is vital in preserving your working capital. However, achieving the ideal inventory level can be reminiscent of Goldilocks’ visit to the home of the three bears. Keeping too much inventory on hand will ensure you can meet customer demand in a timely manner. It can also tie up your working capital, reducing your liquidity. Too little inventory can result in the failure to meet customer demand, causing your customers to seek out your competitors. Analyzing previous sales and creating future sales projections will help you determine the proper amount of inventory to purchase to meet customer demand and preserve working capital.
During the height of the pandemic, you may have been more flexible with your accounts receivable. Now is the time to require your customers to return to your original payment terms. You should also evaluate those terms. Can you shorten the time between invoicing and the payment due date and still retain your customers? Or offer a slight discount for early payment? This could significantly decrease the possibility of a gap in your cash flow and improve your working capital management.
Tightening up your receivables process and improving your cash flow will allow you to pay your vendors faster. On-time and early payment can strengthen vendor relationships and result in receiving better deals, payment terms, and discounts.
Even with the proper working capital management, a business may still occasionally find itself in need of some additional capital. CapFlow Funding Group may be able to help. If your business needs an immediate, short-term influx of capital to keep your business moving forward, alternative merchant funding options can be a great solution.
At CapFlow Funding Group, our team of professionals will evaluate your unique situation and help you determine which funding option would best suit your company’s needs. We service many different industries with a variety of different funding needs. In addition to merchant cash advances and invoice factoring, we work with trusted partners to provide additional merchant funding options. Contact us today!
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