Six Impeccable benefits of Invoice Factoring for Small Businesses

Every business knows that staying on top of their accounts receivable is essential for maintaining healthy cash flow. However, it can take time to review the receivables and make collection calls. Even so, companies want to get their outstanding cash balances into their bank account as fast as possible. One way to ease the burden of the collection and receive cash faster is to factor in the company’s sales invoices. This article discusses the benefits of working with reputed and experienced factoring services.

● Faster access to cash

One of the most frustrating aspects of managing cash flow for a company is knowing that it is owed more than enough cash to meet its commitments. Yet, the company can’t pay its vendors because customers are misusing the credit terms. Invoice Factoring to professional factoring services can reduce the time lag between raising an invoice and receiving cash. In most cases, the companies will receive 80% to 90% of the invoice’s value within only one or two days.

● Flexible terms

Almost every factoring company offers a range of flexible terms. Clients can set up an invoice factoring arrangement according to their needs. There is no need for businesses to tie into a long-term contract, and also, companies can choose which invoices they want to factor in.

● Increase profits

Many businesses find that the cash factoring frees up and leads to higher profits. They can pay their vendors faster and can negotiate better terms with suppliers. Also, early settlements will allow companies to take advantage of early settlement discounts. Additionally, the increase in available cash might also allow businesses to invest in new product development to boost their marketing efforts.

● Smoother cash flow

With factoring services, now that companies receive cash for their sales invoices immediately, it becomes much easier to manage cash flow. The cash flow smoothing effect of invoice factoring also makes it easy to pay on time to the vendors. Therefore, less time is wasted in dealing with supplier collection calls and juggling with available cash balance.

● Off-balance sheet financing

Since factoring is not lending, there is no increase in liability. Unlike a business loan, there are no monthly repayments to make, and thus, factoring is not shown as a liability in the balance sheet. A company gets a cash injection and improved cash flow without having an impact on the balance sheet.

● Cost-effective

Invoice factoring used to have a bad reputation for charging higher amounts from clients. However, in the recent few years, the factoring cost has been reduced to a great extent. The type of industry a business operates in, the volume, value of invoices and customers’ creditworthiness are some factors based on which the cost of factoring is determined.

Conclusion

Invoice factoring is a cost-effective way for companies to get cash for sales invoices within less time. The increased cash availability provided by factoring provides several benefits to small businesses outweighing the costs.