Small companies that need to build up their cash flow often need to be creative in their approach to finances. Using invoice factoring can be a way to fix tight budget problems, whether you lease restaurant equipment, sell deaerator parts, or boxed paper. Factoring is a versatile tool that can bring in the money to hire new employees, invest in a marketing plan, or fund a new project.
Benefits of Factoring
Slow paying clients can really strap your flow of cash, throwing a wrench into your plans and business schedule. If you don’t have a steady stream of income, it can be difficult to figure out how to grow your business. It can be hard to give your employees a raise or a bonus, and they may even question your ability to pay them all. If your clients are only paying their bills every 60 to 90 days, that becomes your income stream yet it is still unreliable. Everything you do is thrown out of whack when you can’t count on your cash flow.
How Does It Work?
With invoice factoring, you can take outstanding invoices from your client accounts and sell them to a third-party collection agency. Although the collection agency will charge your company a fee for using their services, the company will give you an advance for up to 90% of the outstanding invoice and collect the amount from your client. This provides the money to buy what you need for your company and also takes the pressure off the accounts receivable department for collecting on past due invoices. Once the factoring company collects the amount of the invoice from the client, the remaining money is returned to your company.
Factoring is an efficient way to boost your cash flow in a hurry, and you can take as many or as few invoices as you need to the factoring company. If your finances are in a crunch, this a great solution to your cash problems.