Your company may struggle under the weight of outstanding invoices. If there isn’t sufficient cash flow, despite having good sales and growth projections, it may still be difficult to stay in business. In these cases, it might be wise to consider utilizing factoring as a method of financing.
Your company can obtain money through the process of factoring based on the anticipated future income from an account receivable or invoice. Because of this, it is a good alternative for small and medium-sized firms that do not have a longstanding banking history with a major lender.
Invoice factoring is a unique type of financing that enables you to gain access to cash that isn’t yet available. A lender acquires your unpaid invoices from you in a process known as factoring. Most factoring companies will provide you with an advance of up to 90 percent of the value of your eligible receivables. After that, the lender will collect the funds from your customer to apply toward paying down the factoring balance. Then, when the invoice is paid, they will send you the remainder of the monies, less any fees.
When to Use a Factoring Service
Let’s take a look at a few examples of times when using invoice factoring might be your best choice for financing.
You require financing in a hurry.
When you are faced with immediate cash flow issues, you do not have the luxury of waiting for a bank loan for several weeks. Instead, you have an immediate need for the money. One advantage of factoring, including factoring government receivables, is that, in comparison to a traditional bank loan, it enables you to acquire the necessary funds quicker and with less hassle.
You are getting ready for an influx of new customers.
If your company is in the process of increasing sales — whether your customer base has grown, your product lines have expanded, or you are approaching peak season — you probably do not have time to wait for a bank to loan you money. If your company is in this situation, you need the money as soon as possible.
In these situations, waiting for financing to become available can mean missing out on important chances. Consider invoice factoring as a potential source of funding for your company if you are planning to expand its operations.
You have a government contract.
Because factoring provides rapid access to funds, you will be able to boost your level of service and supplies as required to maintain your clients’ loyalty. This can be especially crucial when working with government contracts. Invoice factoring government contracts can give your company the edge it needs to stay competitive.