The vast majority of businesses around the United States have less than 500 employees and are considered to be “small.” These account for about 99.7% of all American businesses. U.S. Bank has estimated that nearly 82% of businesses that do not succeed can blame that on problems with their cash flow. In fact, almost 60% of invoices to small businesses are not paid on time. If you are a small business owner, you may have had this problem yourself, this is often when invoice factoring companies step in. What is the invoice factoring process and how can it benefit my business? Read on to find out.
The invoice factoring process is more simple than it may seem at first. The basic principle behind it is that businesses sell their account receivable to a company that handles invoice factoring services. In the United States invoice factoring companies will look at how creditworthy your customers are and will provide an advance that can go up to the full amount on the invoice. This advance can help you with any cash flow problems you are having. They do charge a fee for this but overall, companies that use this will get their money a lot faster than when they wait for customers to make good on their invoices.
There are a number of benefits to using the invoice factoring process rather than take out a business loan. You can get money from a loan but it may take more time and you will be saddled with the high-interest fees that accompany a loan. When you use an invoice factoring company, they get you the money you need to take care of your payroll costs, pay what you owe to your own vendors, and invest some in your business. In many instances, you will have your money in as little as one day. If there are parts or supplies you need to buy, you can do that.
At the end of the day, you get the cash you need to go on with your business without having to worry about hounding customers or clients for the money they owe you. In addition to allowing you to avoid dealing with the issues and problems that come along with a sluggish cash flow, you can also save yourself the stress and hassle of dealing with clients or customers who do not want to pay you in a timely manner.
When you combine invoice factoring with a good plan of proper cash flow forecasting, you can really do a lot to grow your bottom line. You can plan ahead to have your crucial expenses, such as payroll, taxes, insurance, and inventory costs taken care of. When you know your cash flow will continue unabated, you can more effectively make plans for your business.
Another benefit to the invoice factoring process is that it will not impact the credit score of your business. When the credit score of your business is looked at, one big factor is how much credit you have available and how much money you have in your accounts. A business loan from the bank may give you the cash you need to pay your people, cover your taxes, and buy the supplies you need but also impacts your business’s credit rating as it shows up as a liability against your assets. This can be avoided if you use an invoice factoring service.
For some business owners, the term “cash flow forecasting” may be foreign. If you have repeat customers, who may not pay on time as often but do come back time and time again, you can factor that into your plan for your cash flow. You want to keep these customers but if you do not have the right cash flow, your business can go under. You should think about this the same way you plan for your taxes to be paid. You probably have a good idea of when certain bills are due, having a similar plan for when you can expect money to come in will help your business prosper.
If your business seems to be getting paid later than you like, starting the invoice factoring process can help keep your business open.