When you are seeking financing for your business and most of your funds are tied up in your cash flow, factoring invoices is a great option you have. Factoring invoices simply involves selling your invoices to a factoring company who will provide you with an initial down payment amount for the invoices and the final payment once your customers meet their payment obligation to your company.
Factoring invoices provides you with money now so you can take on larger invoices from your customers. Since you are provided with the money almost immediately, you don't need to worry about finding your customers to ask them for a down payment amount on the invoices. You can acquire about 80% of the money now and use it to pay for cash flow needs and other business needs while the factoring company focuses on acquiring the money from the customer. Once the customers pay their invoices, you will be given the other 20% of the invoice amount.
Choosing to use factoring invoices provides you a chance to improve your business credit rating as you have money to actually pay for your invoices and monthly payment obligations. As you find that you actually have money to pay your bills, you will develop better relationships with your lenders and you will strengthen the financial outlook for your company.
The problem most small businesses face is their cash flow. While a big order can generate great profits, they don't always provide you with this money instantly. Offering business credit to these large orders can leave your company in financial ruin as they take months to finally pay off their invoices. By using all of your cash flow money to pay for the raw goods needed for a larger order, you put yourself in jeopardy as you cannot pay for the smaller orders that may be coming in. Small businesses need their money as soon as possible as it is the life blood of their organization and without it, they will not become a success.
Small businesses benefit from factoring invoices as they get money almost immediately and the factoring company will benefit as they are able to earn a generous income from your company by charging you per invoice or a flat rate amount for their services. Factoring companies purchase the invoices at a discount from your regular invoice amount.
When you choose to use a factoring invoices firm to help you collect on the funds, you do need to research the credit of your customers. Most of the factoring companies will only take on the invoices of customers that have known payment habits and strong financial records to prove they are worthy of a loan.
The factoring invoices firms also want to take on new invoices. Dealing with invoices that are older than 30 days leaves the factoring invoices firm in a bad situation as it is extremely difficult to collect money from people that have allowed their invoices to age. This means that an invoice that is older than 90 days will need to be collected from your business or collection firm. You can choose to do this own your own or hire an outside collection firm to handle your past due invoices if you feel that you will earn a big income from them. When you are running a small business, you need to maintain a positive cash flow. Your cash flow is essential to the health of your business and without it you will be unable to pay your bills and sustain your business. Factoring invoices is one of several different ways in which you can acquire funds to sustain your cash flow and keep your business alive.
Corporate Credit Concepts specializes in factoring invoices. For more information about factoring invoices and how it might benefit your business, please CLICK HERE for a free phone consultation.