Benefits of Factor Financing
Cash flow is the lifeblood of a business. With a positive cash flow, your business will be more successful. Businesses that consistently have a negative cash flow must implement systems to restore that income. Factoring financing is an excellent way to increase income while limiting expenditures. When you choose this option, you provide a third-party company with some or all of your unpaid invoices. The company works to collect the payment on your behalf. For their time and effort, the third party retains a portion of each collected invoice. Let’s take a look at the advantages of this unique lending option.
Save Payroll Costs
Training or hiring employees in the process of collecting invoices is an expensive endeavor. It distracts your employees from their primary responsibilities. Working with a financing company allows your employees to prioritize their daily job tasks. If you do not have an employee dedicated to collections, you save recruitment, payroll and benefits costs.
Receive Money Fast
Receiving approval for invoice factoring is significantly faster than traditional loans. The lender focuses on the outstanding invoices to determine which ones they can collect. They do not require your company’s credit score, financial history or collateral. The more invoices you turn over to the lender, the more invoices will be paid, increasing cash flow into your business.
Increase Cash Flow
During peak seasons, your employees may not have the time to dedicate to collections, and they may shift that task to a lower priority. If your business lays off employees during slow seasons, you may not have the staff to collect those invoices. The company is working consistently throughout the year to collect these invoices. When the money is collected, it is deposited quickly into your bank account, which is ideal when cash flow is limited.
Collect Old Invoices
Providing a variety of invoices to the lender allows you to negotiate a larger percentage of each invoice. The company can dedicate more time to collecting those older or more challenging invoices. Keep in mind that more challenging invoices will garner a higher rate for the company.
Improve Business Financials
Your business does not incur additional debt. It only shows the income received from the collected receivables. This allows you to take advantage of time-sensitive opportunities that come your way.
Adding the services of a factoring company can improve the profitability of your company. Consider turning 100% of your accounts receivable collections over and you may find that this improves your company’s performance.