What Is Invoice Factoring?
Small businesses often depend on consistent cash flow to make up for the relative difficulty they face maintaining deep cash reserves, especially newer small businesses. For those who opt to use invoice plus billing, this can be difficult, because you can never tell when a customer will pay the bill or even if it is guaranteed to be on time. Invoice factoring is the solution that provides you with regular income while streamlining your administrative overhead and maintaining the customer convenience involved with invoice billing.
Move Invoices Off Your Books
When you factor invoices, you essentially sell them to a third party investor who assumes the cost and risks associated with collection. Naturally, the factor offers less than the face value of the invoices, but for the convenience of lump sum payments that cash out your invoices before they age it is often worth the expense and more. After signing an agreement with the factor you do need to communicate new payment instructions to customers, but after that you are done with the old invoices.
How Much Capital Does Factoring Raise?
Most factors will work with a small business looking to sell all its invoices regardless of how much they are worth. The question is what percentage of the face value you wind up with, and the key to maximizing your payout is minimizing the risk for the factor. Identifying and cutting loose customers who do not pay on time as a habit is one way, as is financing regularly so invoices are always fresh. It also helps if you finance everything, because the larger pool of invoices dilutes the risk involved if a client defaults.
How Often Can You Factor Invoices?
If you really wanted to, you could factor your invoices as often as you have any to factor. Realistically, most companies set a date every one to three months to mnimize the time spent on applications. Finding the sweet spot is often a matter of determining how your volume of business affects the work involved with applying and the amount available. Finance too often and it becomes administratively inefficient even if cash is flowing smoothly.
Get Started With Factoring Today
If your small business could use cash flow rationalization to offset the wait for invoice payments, you need to talk to a factor today. Don’t be afraid to shop around for the terms or program that best suits your needs. There are a lot of options when it comes to factor agreements.
