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Top 10 Reasons For Factoring

by Peter Amundson

Factoring is a financial transaction in which a business’s outstanding invoices are sold to a factoring company at a discount – in exchange for cash upfront. It’s all about cash flow, as sometimes business owners do what they must pay their suppliers and their employees to keep the lights on.  

There are many more reasons why factoring is a good idea. If cash flow is a problem in your business, the solution might be right at hand. Factoring is a sure-fire way to turn your invoices into cash. 

Let’s take a look at our Top 10 Reasons for Factoring 

  • Pay Your Staff

Your business is built on trust – and that trust starts with your employees knowing that their monthly salary will be deposited on time. There’s nothing worse than trying to create team morale as a business owner if you’re on the back foot to begin with, assuring employees that their ‘cheque is in the mail’. 

  • Pay Your Suppliers

Along with taking care of your employees, paying your suppliers is a top-priority in order to keep a reputable name in your industry. This also ensures you have the resources required to keep your business running.

If your business offers a service, there will be affiliated monthly costs that need to be covered, so you can start your business day with an air of confidence, knowing that while cash flow may be tight, opportunity is on the horizon.

  • Customers With Extended Payment Terms

Often, small businesses are at the whims of a larger retail chains and accept the terms of payment at the outset because they need new business and expansion opportunities. Usually, bigger businesses can take up to 90 days to effect payment – an eternity for businesses without vast resources. 

Factoring frees you up as a business owner. You are able to generate cash from the guarantee of these invoices being paid. With this comes a peace of mind that affords business owners more headspace to focus on generating new customers.

  • Increased Business Growth

Many businesses will struggle with scalability as demand for their product or services increases, as their overhead costs also amount to more. If you need to spend money that isn’t budgeted as part of your usual monthly costs, and you have invoices accrued that can tide you over, then factoring is a great way to facilitate that growth without additional stress. 

  • Decreased Cashflow

If your cashflow is dwindling, but you’re not entirely sure why, then factoring will give you some breathing room. You’ll be able to review your monthly expenses and assess where you can cut any unnecessary costs. 

This is a prudent move, designed to keep you frugal and not chasing down the next big deal. Factoring lets you look at your business in the cold light of day and gives you time to understand what you can do to better improve your cashflow from month to month. 

  • Accounts Management

A great benefit of invoice factoring is that it offers objective overseeing of your accounts.

This is a ‘catch all’ method that ensures no invoices slip through the cracks, resulting in the loss of hard-earned revenue simply because you fell behind on your admin and managing your books. 

On top of that, it’s professional to have another company chasing up invoices on your behalf so that you’re not made to look like ‘the bad guy’ while still wanting their business. 

  • Free Credit Assessments

If you’re a fledgling business that is just starting, then a factoring company is a great ally to have as they will carry out due diligence when it comes to performing credit assessment risks on the brokers and businesses you are beginning to work with. This will keep them accountable and ensure that you don’t make any big, risky decisions over-extending yourself too early on. 

  • Freeing Up Time

There are other alternatives to factoring – applying for a bank loan or finding an investor, for example. But none of these are as expedient and as simple as factoring. If you’re finding that there just aren’t enough hours in the day, then factoring can free up time and allow you to focus on the ‘front end’ of your business while the ‘back end’ is taken care of for you. 

  • No More Debt

Since your business’ unpaid invoice is used as collateral, the inherent financial nature of the factoring transaction means that it’s not considered as incurring any more debt. Perhaps your savings account is already tapped out, or your credit is over-extended – but the invoices are pending payment, and you just don’t have the energy to chase up payment by getting into any more debt. Factoring is a neat workaround that ensures your credit rating is unaffected and that you can rest easy knowing someone’s got your back.

  •  Good Credit Is Hard To Come By 

Perhaps you have a black mark against your name in the form of a recent bankruptcy. Or, maybe a bank has declined your application for a loan. Factoring will provide you with the funds needed to run your company as you know how – without seeking the approval of a financial institution or dealing with a dodgy loan shark.

Business Factors & Finance 

Here we’ve given covered our Top 10 Reasons for Factoring. Of course, each business is different. Factoring invoices may be the answer you’re looking for if any of the reasons above strike a chord with where you and your business currently find yourselves. 

When it comes to factoring, we can expertly assist you with the professional management of all your invoices. 

If you want help improving your cash position with a broad spectrum of options, feel free to contact Business Factors & Finance at (800) 672-3844 or find out more about our services on our website.  

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