Invoice Factoring Services – Advice On Using One
If you want to know about invoice factoring, then you need to read this article. Every business needs working capital in order to survive. However, if your business regularly invoices customers then your cash can be tied up in your accounts receivables. We will discuss how invoice factoring can help your business to have a more consistent cash flow and the working capital it needs to compete in the global economy.
Companies that invoice their customers generally have to wait before that invoice is paid. In addition to the payment terms extended to customers, not all customers will pay their invoices on time. This can cause a serious cash crunch for most businesses, especially smaller independent “mom-and-pop” companies. Invoice factoring is one method used by savvy business owners to stabilize their cash flow and keep adequate working capital on hand to operate and grow the business. If these business owners had to wait up to 180 days to receive payment for their products and services, many would unfortunately go out of business. Invoice factoring is a much-needed service for the business community.
Conceptually, the process of invoice factoring is simple. As the business owner, you would sell your invoices or accounts receivables to a factoring company. The factoring company would review the business credit and financial history of your customer and determine the likelihood of them actually paying their invoice on time. If the factoring company accepts the invoice, they would buy it from you at a small discount, known as the discount rate. There is a mutual benefit in this because you are granted access to the working capital that your business desperately needs, and the factoring company has just purchased an asset (your invoice) at a discount.
Invoice factoring can be the difference between having a successful business and being out of business. This strategy has been used by sophisticated entrepreneurs for years. Not only can invoice factoring get you through tough financial times, it can also help your business to thrive by providing increased liquidity. As a business owner, you must make sure that you are well versed in the process of invoice factoring.
Because many companies can not qualify for standard bank loans, invoice factoring provides a valuable service to companies with accounts receivables. If you want to get a handle on your cash flow, it would be in your best interest to liquidate some of your receivables for quick cash.
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