What exactly is invoice factoring? Put simply; invoice factoring refers to selling the accounts receivables of your business to a third party at a discounted rate. The buyer will then assume the right to receive payments for those invoices. Generally, invoice factoring companies will pay you about 80 percent of the total invoice value and pay you the rest minus factoring charges once your customers pay. This is a business method that is employed by several businesses regardless of their size. The following are some of the ways your business would benefit from the invoice factoring companies.
One of the major benefits and motives for employing invoice factoring is that it increases cash flow. Your business needs working capital at all times. Invoice factoring enables you to secure cash fast as opposed to waiting for around 30 to 90 days. Additionally, this working capital is mainly unlimited because it is usually dependent on sales turnover and not asset capabilities. With a regular cash flow and expanded working capital, your business will be able to meet all the day to day operational costs. Moreover, you will also be able to seize opportunities for growth that may arise. Get more info about invoice factoring here.
Credit control is another key benefit of invoice factoring. This is because it eliminates the need for debt collection since the factoring company will assume all credit control functions. This will, in turn, enable the staff and owners of the business to focus their attention on core business functions in order to grow and expand. This also has some cost-cutting benefits because as the factoring company takes over the credit control functions, there won’t be a need for things like check collection or maintenance of the sales ledger. These are the functions that usually consume a lot of time and resources in any business organization.
Invoice factoring is also a relatively affordable source of business finance. The major reason is that invoice factoring is not subject to high-interest rates compared to other financiers. Invoice factoring is easier and involves less hassle, unlike borrowing money from financial institutions or trying to get the investors to raise more capital. These processes are usually long and tedious, and sometimes the efforts may be futile in the end. Most of the other financing options for your business are either time-consuming, costly or both. Invoice factoring is one of the best ways to beat the hassle and keep your business financed. Learn more about account receivable at https://www.britannica.com/topic/account-receivable.
