All businesses hit a point where it seems impossible to grow without raising capital. Whether it’s investment money or a bank loan, privately held businesses tend to focus on ways to grow their businesses while retaining control and managing debt. Enter factoring.
What is Invoice Factoring?
In a nutshell invoice factoring provides a third option where the business doesn’t incur new debt nor dilute ownership with new investment by selling open invoices at a marginal discount, receiving same-day payment for invoices due 30-90 days out. Beyond the obvious cash flow potential, most factoring companies also offer a suite of back-office services including invoicing/account receivables, payroll, chase down overdue invoices, and a variety of additional benefit services specific to your industry.
While the benefits extend far beyond what we’ll cover in this article, let’s focus on 3 key ways invoice factoring can help grow your business:
You upload your invoices and have cash deposited in your account within 24 hours. No more waiting on a customer’s A/P terms, you have access to the revenue generated by today’s work product tomorrow rather than 1 or 2 months out.
Back Office Services.
Especially important for smaller businesses where A/R is often handled by an owner or manager as one of many job functions, managed back offices services including payroll and accounts receivable is a welcome addition allowing business owners and managers to focus on revenue generating or expansion tasks and rest assured of consistent cash flow.
Flexible Financing Option.
Unlike a bank loan, factoring invoices can take place for a season, partial, or full-time basis, allowing businesses to better manage finance expenses while ensuring the cash flow desired is delivered.
Bonus: The Non-Traditional Financing Route.
While some businesses choose factoring as the alternative to acquiring debt or diluted equity through investors, some businesses simply do not have the luxury of traditional loans at decent rates, either due to a short credit history or past judgment. Invoice factoring allows these businesses to better manage cash flow and fund growth with a quick and easy application process.