Giving Your Business an Edge With Receivables Factoring
As any good business person will tell you, you have to spend money to make money. When businesses spend their cash on hand to provide goods or services for their customers they do so knowing they will be compensated by said customers. However, any lag time in the processing of receivables can become a significant hindrance to the business. This is where factoring becomes a key tool available to businesses. It is especially useful to small businesses where uninterrupted operations are critical. Beyond just small businesses, it can be a critical tool to any business which is seeking to minimize debt, maximize growth, and avoid the troubles of collections.
When the problem is not enough cash on hand the initial instinct many may have might be to pursue a loan from a traditional lender. There are drawbacks to that approach in that it requires offering up collateral and taking on immediate debt. This can be unappealing for businesses where sufficient, negotiable collateral is not abundant, or where the business model requires very careful management of the business’s debt-to-equity ratio. Of course, the more direct benefit of avoiding debt is that it frees up a greater proportion of revenue towards reinvestment in the business and consequently stimulates growth.
An important additional dimension in this decision is the explicit turnaround time of the process. Organizations that offer receivables factoring services consistently offer more cash in advance compared to traditional lenders. This option puts companies in a much better position to quickly capitalize on growth opportunities as they present themselves. Taking full advantage of growth opportunities as they present themselves can make all the difference in a highly competitive market. Just as important can be not to overextending your company as it experiences growth by allocating funds carefully.
These growing companies will also often find themselves substantially burdened by the process of collections. As the volume of a company’s customer base increases, this problem only scales accordingly, and the resources and manpower can quickly consume all the gains of growth. This can be avoided entirely in taking advantage of receivables factoring. A business in this position can then pass the responsibility of collections to the organization providing this service, and these organizations are often much better equipped to carry out the collections process. Taking advantage of this expertise is a great way for a business to put itself in a position of leveraging its assets in the best possible way.